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How to correctly transfer rental income from holding account to designated Rental Account.

SilverGlider

I am using Quicken HBR, Version R51.12, Build 27.1.51.12 on Windows 10.

I don't know how Quicken handles this situation, just that my experiment did not work, as I did not expect what I am seeing. Evidently I am wrong in the way I handle this rent transaction and I hope someone can set me on the straight road to balanced accounts:

I have a tenant that pays electronically before the rent due date(!) - I know, the problem we all want... But that makes Quicken tracking in the rent tab kinda erratic, since one month shows surplus rental income, and the next month shows very low rental income. I wanted to smooth that out, so I tried an experiment. I asked this tenant to pay their rent into a holding checking account I set up, and then I transferred that payment into the Rental Checking account on the due date for that property. All seemed fine until I recategorized that transferred line from the transfer category [ACCOUNT A] to 'Rental Income:Rent Recieved', whereupon the strange behavior happened. Let me list it out:

1)Rent electronically received into holding account (ACCOUNT A). I categorize it as "Misc." It is cleared by bank (BoA).

2) On due date, I transfer that amount to the rental account (ACCOUNT B). Transfer shows correctly, transfer out of ACCOUNT A and transferred into ACCOUNT B and both lines 'match'. Transaction in Account B is categorized as being a transfer from [ACCOUNT A]. Good so far.

3) I recategorize the ACCOUNT B entry line to "Rental Income:Rent Recieved". The transfer entry in ACCOUNT B shows up correctly, but the transfer transaction in Holding ACCOUNT A disappears completely!

So now Holding ACCOUNT A shows a higher balance than reality (no "xferred out" entry), and the Rental Account (ACCOUNT B) shows a correct balance with the tax category I want.

What underlying Quicken behavior am I missing? How do I make this work? Help...

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Comments

SilverGlider

OK - I am worried now. I asked this question about a month ago and so far no comments. Am I asking in the wrong forum?

Tom Young

@SilverGlider

No, you're not in the wrong forum, but there's not a lot of users here that use Quicken HBR (that includes me) so sometimes questions involving Quicken HBR languish.

I'll step over into the SU's Lounge and ask for one of the other SUs who do use Quicken HBR (there's a few) to take a crack at this.

Certainly one problem with your workaround is that an entry that originates as a Transfer - Transfer from A to B say - is exactly that, a transfer of money between two Accounts and you can't go changing one side of that entry into some sort of Category without affecting the "other side" of the entry; in this case the "Transfer" out of A completely disappears. That's just a fundamental aspect of double entry accounting and can't be changed.

As an accountant I can tell you the entries that properly account for and track your situation, but since I don't use Quicken HBR I can't give you the "mechanics." The series of entries should be along the line of:

Entry to reflect the fact that rent for the month of (Month) was received early, and not recognized as income.

Debit (increase) Checking Account $XXX ———————————Deposit shows up at the bank, early
Credit (increase) Deferred Rent Account $XXX —————————You put the dollars received into a Liability Account on the balance sheet

Entry made on the 1st of the month to actually recognize the rental income

Debit (decrease) Deferred Rent Account $XXX —————————Zero out the Deferred Rent Account
Credit (increase) Rent Income Category $XXX —————————Recognize rental income in the correct month

You should be able to do away with that Holding Account as it's not doing a thing for you that I can see.

A couple of thoughts:

"since one month shows surplus rental income, and the next month shows very low rental income."

I didn't understand that because if someone is consistently paying, let's say, on the 28th of a month for "next month", if you're recognizing the income in the month received then income each month should be the same, just a bit "early."

From an income tax standpoint and assuming you're a cash basis taxpayer, I believe the rule is (look it up as I'm winging it here) that income is recognized for income tax purposes when received, so if you want Quicken to reflect how your income tax return should look, you might just want to recognize the income when the deposit hits the bank, even though it's for "next month's rent."

UKR

When the original bunch of Quicken programmers wrote the Rental feature, things like Zelle payment transfers hadn't been invented yet. Direct credit into someone's checking account was typically only done by large companies' Payroll system, not by individual users.

The Rental feature expects rent to be received using a transaction made in the Rent Center which, in turn, puts a deposit transaction into the designated checking account (account name is stored in the tenant's Rent Details dialog).
I don't think that recording a deposit transaction directly into the checking account and expect it to correctly appear in the Rent Center works … I don't really have too much experience with this feature.

I would, using the Rent Center, record a Rent Received transaction directly into your checking account, with the expected arrival date of the deposit. Do this early, before downloading transactions into your checking account.
When you download transactions from the checking account do not automatically accept downloaded transactions. Instead, review each transaction and match it to the already existing register transaction.

As an alternative, and if you want to use a Holding Account (an intermediate account register that only exists in Quicken)
Receive Rent into the Holding account, on the Due Date.
Whenever the deposit arrives in your real checking account record it as a transfer into the Holding Account.
The two transactions should balance each other out. And the Rent Center should show rent received on time.

Tom Young

@UKR

I'm not sure I understand the mechanics here. So, mechanically, you can't enter a deposit into a checking Account and associate that deposit to a specific tenant's rent? Instead you must enter the receipt of the check in the "Rent Center" for that tenant and the other side of that transaction, created by Quicken, is a deposit into a checking Account? Is that correct?

UKR

https://community.quicken.com/discussion/comment/20397398#Comment_20397398

When they wrote the Rent Center, it appears to me that the programmers assumed that everybody would use the Rent Center only to work with receiving rent payments.
Just like the Customer Invoices account for small businesses, transactions are only properly assigned if they originate from the Customer Invoices account. Receiving a customer payment transaction as a transfer from Checking into Customer Invoices does not record as an invoice payment but as a credit or refund and doesn't mark invoices as paid.
Similarly, in the Rent Center, the transaction to receive rent is a specialized scheduled reminder. Recording it from the Rent Center dialog makes all the necessary updates within the Rent Center. Receiving rent "thru the backdoor", i.e., by deposit in the checking account with Category = Rents Received does one thing, but I don't think it correctly updates the Rent Center dialog to reflect the payment in the correct month.

And that's why you'll always hear me say "use the Rent Center to receive rent" and "use the Customer Invoices transaction dialogs to receive customer payments".

Tom Young

Thanks.

SilverGlider

Thanks for the help - a lot for me to look over and digest in here.

If anyone knows of a good (thorough) HBR technical resource from Quicken or anyone else, please let me know. I've looked without success. I'd LOVE to read and research in it. Thanks.

Tom Young

@UKR

One more question, please. When you record the rent in the Rent Center do you have flexibility as to what Account you record the deposit?

If you do have that flexibility then the obvious approach here is:

When the early deposit shows up in your real checking Account you enter that deposit as a Transfer FROM an offline manual Clearing Account.
On the first of the month you enter the rent for that month, pointing at the Clearing Account as the Account into which the deposit was made, zeroing out the Clearing Account and recognizing the rental income.

UKR

In the Rent Center, for each Tenant, you define which account to use to record rent payments into. This can be different for each tenant, as needed.
In the direct deposit case, receive rent into the holdings account on due date. When the actual rent deposit arrives in the checking account, early or late, categorize it as if it was a transfer to the holdings account.

Some info about setting up and managing rental properties can be found here: https://help.quicken.com/display/WIN/Rental+Property