Final transaction(s) in QBO to close out a flip

[Greg Widdicombe]

Hi many thanks for all the previous discussions on setting up QuickBooks for rehabbing, we poured through the advice and believe our setup and recording of expenditures are correct - now comes the fun part of recording the sale.

What's been done so far:

• Rehabbed property has been setup as a customer
• Current asset "WIP" account setup to track expenditures, with sub accounts to track separately: Purchase costs, rehab costs, holding costs, sale costs
• Items setup and used to record expenditure and post to the appropriate sub account (Zero-dollar check method used) - all transactions recorded against the customer above
• Classes being used to segregate income and expense for different parts of the business (property management, fix/flip)

To date, everything looks correct - all rehab transactions are hitting the balance sheet and not P&L.  Now - comes the sale.

I assume I need to move the balances in the current asset account down to COGS and record the details of the closing statement.  My questions:

• Do I use items to transfer the balances from the current asset to COGS?
• Do I use items to record the details of the closing statement?
• I assume the details of the closing statement would record the sale price, then expenditures related to closing, loan payoffs etc, netting out the cash received
• We normally track income using classes, moving payments received into undeposited funds, then recording a bank deposit.  Do we do the same for the net income from the sale?
• Finally, I assume the transaction to move WIP to COGS occurs AFTER the closing statement as some of the closing costs would be recorded against the WIP sub account for closing costs?

Thanks much for your help - we're big fans of BP and are constantly amazed at the valuable information shared.

-- Greg

[J Scott]

A couple things I do differently (there's no right or wrong here, but you may find this a bit easier):

-  I use classes for each property, not customers.  This allows a simple "P&L Report by Class" to provide a complete overview of the business. 

-  If you have multiple types of business income coming in, you can use sub-items within classes.  For example, you may have top level classes for "Flips," "Rentals," "PM," etc.  Then have sub-classes for each property -- for example, "Flips:123 Main," Rentals: 345 Main," "PM: 678 Main".

-  While technically it's correct that costs don't move to COGS until the sale, my accountant prefers that I record all flip-associated costs as COGS (with sub-accounts for "Purchase Costs," "Holding Costs," "Selling Costs," and all the sub-accounts for each of those).  That way, the headache of moving each cost to COGS upon sale is mitigated.  Instead, when I have properties in progress at the end of the tax year, my accountant just moves all the costs from COGS to WIP -- and then can move them back the next year (after the sale) to balance everything out.  This creates a bit of extra work for the accountant (I have to tell him which projects are WIP each year), but ultimately makes everything easier for both of us.

-  When I sell a property, I create a Journal Entry that records Debits of the various selling costs (which again, are already categorized as COGS), record a Credit of the sales price to an income account and records a Debit of the check/wire from the title company to a Cash account (though this could certainly go to a holding account if that's how you prefer to handle it and then move it to a Cash account later).

- Here is what a selling Journal Entry looks like for me:

Journal Entry for Flip Sale

- If you have a mortgage payoff or other costs, you can obviously record those as debits/credits in the Journal Entry as well.

- Once this Journal Entry is done, the project is complete in QB.  The income is recorded, the COGS are recorded and a P&L by Class will indicate the net profit.  Here is an example (using the property in the Journal Entry above):

P&L by Class

Again, not saying that you're doing it incorrectly (your way is technically more correct than mine with the WIP vs. COGS during the project), but sometimes it's easier to take some shortcuts (assuming your accountant is okay with it).