Tracking escrow payments

Options
nothingclever
nothingclever Member ✭✭✭
I have seen previous discussions around escrow account, many in QWindows, but I’m still having trouble setting up my escrow account.

Ideally, I want to track my month escrow payments as an expense, even though they are a transfer from my checking account. I also want to be able to track the date at which time the escrow pays my bi yearly tax and insurance payments z

My current setup with slips payments in my mortgage:
Transfer to mortgage account
Transfer to escrow account
Monthly interest paid to the bank

Then I add another transaction into my escrow account with property tax expense to track that monthly with my cash flows. The problem with this approach is that my escrow account doesn’t reconcile with my account. What I’ve done is add an positive adjustment to my escrow account for the property tax as well to technically show 0$, but then I’m able to remove any adjustments from my cash flow reports and get to the accurate answer.

Now that my actual tax bill was paid this past week from my escrow account, I want to be able to reflect that transaction as well. I understand this isn’t really GAAP accounting, but if anyone has creative solutions to this problem I would be all ears. Thank you

Comments

  • Jon
    Jon SuperUser, Mac Beta Beta
    Options

    You should be able to include the transfers to the escrow account in your budget. That would eliminate the monthly property tax payments that didn't really happen and keep your escrow account balance matching up with reality.

    When looking at your budget click on Edit Budget and on the edit page click on Select Categories. Scroll down to Transfers and select the option for transfers out to your escrow account.

  • nothingclever
    nothingclever Member ✭✭✭
    Options
    Thank you for the response and something I could try out. But doing this still wouldn’t show up in my monthly income and expense reports, correct?
  • Mark1104
    Mark1104 Member ✭✭✭✭
    Options

    not sure I am following everything, but since you have an escrow account (asset account set up)…

    1. the monthly payments into your escrow account as part of your mortgage payment should be what is reflected in "cash flow" - as you are paying cash to fund the escrow account. The cash balance goes down and the escrow balance goes up.
    2. the actual payment of taxes (and insurance) by the mortgage servicing company is NOT a cash flow. You cash balance does not change when the taxes (or insurance) are paid! But what does change is the Escrow balance. So when the taxes are paid, a simple entry into the escrow reflecting the TAX EXPENSE is all that is required. The escrow balance will go down, your expenses will go up, but there is no change to cash!

  • nothingclever
    nothingclever Member ✭✭✭
    edited April 2023
    Options
    Quicken (rightfully so) does not show transfers on income and expense report. I want to actually show the transfer as an expense on my cash flow reports.
  • Jon
    Jon SuperUser, Mac Beta Beta
    Options

    Have you looked at the new options on the Advanced tab when you edit a report? You can include transfers on reports but it's not on an account by account basis like it is in the budget.

  • Mark1104
    Mark1104 Member ✭✭✭✭
    Options

    @nothingclever - a transfer is neither income or expense. it is what it states - a transfer from one asset account to another (or one liability to another).

    why would you want to show a transfer on an income and expense report? can you give us an example? and if you were to show a transfer, then there are two transfer entries that net to zero, so wouldn't you want to show both sides of the transfer?

  • Jon
    Jon SuperUser, Mac Beta Beta
    Options

    For budgeting purposes people may wish to treat monthly deposits to an escrow account as an expense rather than having one big expense once a year when the money is withdrawn. I have a few annual expenses that I do something similar with but I do my budgeting in a spreadsheet outside Quicken.

  • nothingclever
    nothingclever Member ✭✭✭
    edited April 2023
    Options
    @Mark1104 I want to track my monthly prorated property tax amount as opposed to having two tax bombs on my income/expense reports twice a year. its not too unreasonable for someone to want to track that on a monthly basis.
  • nothingclever
    nothingclever Member ✭✭✭
    Options
    @Jon Hi, yes I have, but like you said, it is for all accounts. If I could select one account that would solve all my problems.
  • Mark1104
    Mark1104 Member ✭✭✭✭
    Options

    @nothingclever - Sounds like you may be trying to create a round peg for a square whole…..when you pay the escrow each month, what category are you charging that to?

    1. if you are charging it to an expense account, it should already appear in your income / expense statement. It should also be reflected in any cash flow statement because you are reducing your cash balance by paying the escrow. There should be no entries required the tax bill actually gets paid by the Bank.
    2. if you are charging the escrow payment to an ASSET account called 'escrow', then this payment affects the cash flow statement, because you are using cash to increase the escrow balance. but it does not impact the income / espense statement. When the Bank informs you they have paid the tax bill, you have to make an entry to reduce the escrow account balance and charge the amount to a expense category ('taxes paid'). This 2nd entry impacts the income and expense statement but has no impact on the cash flow statement as none of YOUR cash moves when the Bank pays the bill. it will create a 'lumpy' outcome in the income / expense report in the months the bank actually pays the property tax

    An attempt at version #2 that smooths the tax expense each month is simply not possible. It goes against accounting principles, which at the core is how Quicken is designed

  • nothingclever
    nothingclever Member ✭✭✭
    edited April 2023
    Options
    @Mark1104 I understand accounting principles and what all the underlying transactions should mean.

    This is how my current transactions are listed

    Mortgage Payment Split from my checking account
    Mortgage Interest (paid to the bank)
    Transfer to Mortgage Account (the principle amount)
    Transfer to Escrow account (property tax and insurance)

    These transfer DO NOT show up on income and expense reports - like you said they really shouldn't.

    But since the transfer to my escrow account does affect my monthly cash flow because it is literally deducted from the amount of money I am able to spend - I can't spend my escrow money, so it should be a negative cash flow event in theory. Therefore, I would like to track that on a monthly basis on my income/expense reports, and not only twice a year.

    Yes, I am trying to accomplish the second scenario, with prorated monthly payments. I understand that this is not GAAP, but it's important for me to see this information, so I am asking for a work-around.

    There were actually helpful solutions such that I can include the transfers in my budget, and then look at my monthly budget that way, but I will need to setup my budget in Quicken.
  • Mark1104
    Mark1104 Member ✭✭✭✭
    Options

    @nothingclever -

    «But since the transfer to my escrow account does affect my monthly cash flow because it is literally deducted from the amount of money I am able to spend - I can't spend my escrow money, so it should be a negative cash flow event in theory. Therefore, I would like to track that on a monthly basis on my income/expense reports, and not only twice a year.»

    but it is NOT an income/ expense item!!!!!!! If you appreciate the principles of accounting, you are debiting an asset (escow) and crediting an asset (cash). Nothing is hitting the income / expense ledgers!

    When the Bank pays the taxing authority, you are crediting an asset (escrow) and debiting an expense account (property taxes).

    why not just debit taxes when you make the escrow payment and not have an asset account called escrow? Since you are not concerned with GAAP, this approach will reflect a smooth posting of taxes each and every month and since you really can't spend what is in the escrow, why be concerned with it?

  • jacobs
    jacobs SuperUser, Mac Beta Beta
    Options

    I'm late to this party, but reading through, I'm trying to understand how you'd like the expenses to show up. You've said you want the transfers to the escrow account to show up on an expense report. So am I correct in then concluding that you do NOT want the payments from the escrow account for your taxes and insurance to show up as expenses, right? Because that would be double-counting the same thing. If this is correct, you can easily do it in a report:

    • Reports > New > Transaction Report
    • Leave the default set-up of Row=Category and press Continue to Customize
    • Set your date range
    • Under Accounts, click Selected Accounts
    • Scroll down the list and de-select the Escrow account
    • Click on the Advanced tab
    • In the Transfers section, click the radio button for "Include selected transfers with accounts outside of report"
    • Click Ok

    Now you have a report which includes, at the bottom below Expenses, a Transfer section, which will show "TO Escrow" for your monthly transfers to escrow. The payments out of the escrow account for taxes/insurance won't show up in your expenses, but you wouldn't want them to in this report because they would be double-counted. And the transfers are added to the bottom line total, in this case, as if they are expenses. As you've acknowledged, this particular report configuration isn't accurate by accountinng standards, but I believe it displays exactly what you want. Or am I still missing something?

    Quicken Mac Subscription • Quicken user since 1993
  • nothingclever
    nothingclever Member ✭✭✭
    Options
    @jacobs thank you. That was the correct way. I’ve been able to go back and play around with my reports but finally got it to show me what I was looking for
This discussion has been closed.