How do I account for an expense deducted from a deposit?

I sold a house. A vendor had done some repair work. Instead of me paying the vendor, the escrow company paid the vendor and deducted it from my total sale income from the house. I received a "Net" check from Escrow reflecting all expenses (including repair) I owed from the house sale transaction. How do I enter/categorize this repair expense as a split item on the escrow deposit entry? Basically, I would have received more from the escrow if I would have paid the vendor directly (and entries would have been simple). Just entering a split with the expense and corresponding "replacement" amount categorizes this expense correctly but artificially inflates the income. Probably more of an accounting question...but I'm a rookie!

Answers

  • NotACPA
    NotACPA SuperUser, Windows Beta Beta
    Record the expense in the Escrow account prior to the sale. Then record the amount that you received from Escrow.  2 simple transactions.
    Q user since DOS version 5
    Now running Quicken Windows Subscription, Home & Business
    Retired "Certified Information Systems Auditor" & Bank Audit VP
  • Sherlock
    Sherlock SuperUser ✭✭✭✭✭
    edited June 2020
    I suggest you do enter the escrow deposit as a split transaction for the net amount.  Your income should include the gross escrow.  Note: Improvements increase your cost basis.  Repairs do not.  See:  https://www.irs.gov/pub/irs-pdf/p530.pdf
  • codcod1
    codcod1 Member ✭✭
    @NotACPA If I enter the expense as 1 transaction and then enter the amount I rec'd from Escrow (Net) as the 2nd transaction, my bank statement won't reconcile. Wouldn't the repair expense have been recognized twice? 1) in my entry and 2) when it was deducted by the escrow company?
  • NotACPA
    NotACPA SuperUser, Windows Beta Beta
    How about providing some actual numbers?
    Because if you had $1000 in escrow and there were $200 in charges, then you only received $800 to deposit into your bank.
    Why would that not reconcile?
    Q user since DOS version 5
    Now running Quicken Windows Subscription, Home & Business
    Retired "Certified Information Systems Auditor" & Bank Audit VP
  • codcod1
    codcod1 Member ✭✭
    @NotACPA thanks for your help and sorry for the confusion! There is no "escrow account" I'm purely dealing with my checking account. To use some round numbers....I sold the house for $100,000. I had repairs done for $5,000. I received a check for $95,000 that was deposited in to my account. I want a transaction to show an expense for $5,000 in repairs. But only way I can figure it out is to show a deposit for $100,000. Make sense?
  • Sherlock
    Sherlock SuperUser ✭✭✭✭✭



  • codcod1
    codcod1 Member ✭✭
    That's what I thought....and the deposit on my bank statement will show $95,000 (correctly) but won't my quicken show that I received $100,000 income? The net result is the same, but I'm dealing with a trust and I want to have my bank statements align with my accounting records. Maybe I'm getting too carried away with this. Thank you for your help and patience!
  • NotACPA
    NotACPA SuperUser, Windows Beta Beta
    You DID receive $100,000 in income from the sale of the house. BUT, the $5,000 is, probably, a deduction on your taxes as "Expense in preparation for the sale".
    Q user since DOS version 5
    Now running Quicken Windows Subscription, Home & Business
    Retired "Certified Information Systems Auditor" & Bank Audit VP
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