Quickbooks, how do you label money reserved for future use?

[Briana Bean]

Husband and I own a few rentals and are working towards more. I am learning Quickbooks and want to get things set up right the first time. I feel like I've got a decent Chart of Accounts in place that I have put together by looking at how other landlords set up their accounts and then tailoring to fit my needs; however, I don't know how to label funds set aside for repairs, capital expenditures, vacancy, (basically any expense you are planning and setting money aside for)? I was hoping to use Quickbooks to keep track of these things to make sure we were setting aside enough for when the time comes that we need to tap into it. Technically, it's not a liability account, because the funds haven't been used. I've read you can create an equity account. What do you guys do?

[Account Closed]

Hi Briana! I'm new to the Bigger Pockets network, but thought I may be able to provide a bit of guidance as I am a CPA by trade and have experience with QuickBooks with some of the client work I have touched over the past couple of years. 

From your post, it seems that you are only concerned about "earmarking" cash for a specific purpose. Without getting too technical and worrying about booking reserves/provisions, I would suggest creating another asset account and naming it something along the lines of "Restricted Cash - R&M Funds" to represent funds available for you and your husband's use only for repairs & maintenance. Therefore, this will still be a cash account, but it is restricted for a specific purpose and can help you quickly identify how much is remaining in that fund vs how much liquidity you have in your operating account. Journal entries would be very simple:

Debit: "Restricted Cash - R&M Funds"      $5,000       <-----Moves funds into the restricted cash account.

Credit: "Bank of America XYZ Operating Account"      $5,000     <-----Moves funds out of your operating account.

When you are paying for items related to the restricted purpose, the journal entries would be:

Debit: "Repairs & Maintenance Expense"     $750     <-----Recognize the expense

Credit: "Restricted Cash - R&M Funds"                       $750 <-----Draw down the restricted cash...at month end review the balance on the balance sheet. If it's too low, then make another journal entry to move some operating funds to restricted.

One suggestion: If you are only using one bank account, you should perform a reconciliation at the end of the month to make sure that the sum of the operating account balance and the restricted cash balance from the balance sheet equals what is show on your bank statement. Maintain this as a good financial control from day 1 and it will become a lot easier as your empire expands.

I don't think it would be appropriate to book anything in an equity account. The only alternative I could see is booking a current liability for the estimated amount of expenses you expect to incur on an annual basis. I could go into further detail on this if you wanted, but I think that is getting in the weeds for what you are trying to do.

Hope this helps. If you have any questions, please let me know - I'm a fellow Missourian so I'd be happy to help.

Best,

Zach