Escrow

[rjaley]

If I create an escrow account using a customers deposit how do I pay their individual invoices with the funds from the escrow account. I don't see any way to connect it to any invoices.
Deb

[Dennis]

Escrow accounts are designed for a totally separate account that is not your money (mostly for rental deposits, in states that require escrows for them). To use the money, you'll transfer it into one of the bank accounts that belongs to you.

If a customer gives you advance money on a project, it's not really escrow, since you have control of the funds. If it's a separate bank account, create a checking account (or whatever) for it. If you deposit it into one of your regular accounts, create a deposit "on account", and Goldenseal will automatically deduct it from future billings.

[rjaley]

So if we create a Goldenseal Project specific savings account can we then transfer money out of it to pay the projects weekly invoices created by GS after the client has reviewed and approved them?

Having the Money paid on a account doesn’t work in this case for reasons I won't go into.

Right now we have a Project savings account setup (but not in GS) and we do transfer the money out after weekly invoices are approved in the exact amounts of the invoices, but there is no record of any of this in Goldenseal other than the deposits so we can't run any kind of report and if I want to see the balance left in the account I have to look at paper docs or excel spreadsheets.-Jud

[Dennis]

So if we create a Goldenseal Project specific savings account can we then transfer money out of it to pay the projects weekly invoices created by GS after the client has reviewed and approved them?

Sure, it's probably simpler than you think. Just create a savings account (or checking, or whatever), and use it.

Even though you think of it as an "escrow" account, it really isn't. You're spending it on your invoices, which means you have control of the money. Goldenseal Escrow accounts are mainly for rental deposits, in states where you need to create a separate account for the money. Most people don't need them.

Likewise, we don't specifically link any bank account to a project. But if that's how you use this account, just name it after the project so you know what it's for.

[rjaley]

Ok, so I set up a GS savings account for the project with funds given to us by the client, but I still can't figure out how, in
GS, to make a transfer out of that savings account into our main checking account and have it pay/link to single project invoices. Is that possible?

[Dennis]

To do what you are describing, you would first do the following:

1. Choose Savings Transactions from the Bank menu, and select the account you set up for the project.
2. Click the New button.
3. Enter Transfer Out as the transaction type.
4. Enter Checking as the Transfer To.
5. Fill in the Checking account as the Account.
6. Fill in the amount.

Then, you'd pay expenses out of the checking account, whenever you actually write a check.

There's no way to "link" a bank transfer to specific expenses (except for writing in a comment to remind yourself). If you want to have a hard link between a bank account and a specific project, you'd be better off to create a checking account for the project, and then pay expenses directly from that account. That is not necessary for Goldenseal to function, but some people like to do it-- just for their own "internal" bookkeeping system!

BTW, if you want to see all cash transactions for a project, do the following:

1. Choose Banking from the Reports menu, and choose All Bank Transactions from the submenu.
2. Turn on the More Details checkbox.
3. Enter Job into the Match Field popup.
4. Enter Project Accounts into the Account Class popup.
5. Enter a specific project into the clairvoyant field next to Match Field.
6. Click the Update button.

That will work no matter how you set up your bank accounts-- and it will pick up expenses paid by credit card, cash, check or whatever.

[rjaley]

[quote=Dennis;575]To do what you are describing, you would first do the following:

1. Choose Savings Transactions from the Bank menu, and select the account you set up for the project.
2. Click the New button.
3. Enter Transfer Out as the transaction type.
4. Enter Checking as the Transfer To.

If I do this, how will it show up in the checking account? We want to pay specific invoices, not have it show up as "paid on account"

This is a large T&M project where we bill the owner every week. He then reviews the invoice and if he approves signs off and faxes over the approved payment application. Sometimes the approvals are not in chronological order because he has a question about invoice #32 but 31, 33, 34 and 35 are approved for payment. That is why I can’t see how the “paid on account” will work here.

What will happen if we create a Escrow account and when we want to "Pay" a $1000 invoice we create an "other transfer" will this look to GS as if we just withdrew cash from the account?

And in turn can I then "deposit" that $1000 in our general checking account as if it were a check?

In the end I’m just looking for a convenient way to keep track of when the money was moved out of escrow and deposited in our checking account to pay an invoice and be able to keep track of the balance in the "escrow" account and interest that we earn on the escrow money. I would also like to be able to reconcile the “escrow account” against the banks statement at the end of the month. There doesn’t have to be a hard link via GS from escrow to checking.

[Dennis]

I think it would be best if you call our support line on this.

I've tried to answer with basic descriptions of how Goldenseal handles escrow, but I really can't give a specific answer for your case, since I don't know the details of how you are getting payments, and how the various bank accounts are set up.

Generally, what we try to do is "follow the money" in this type of support question. Otherwise, it's easy to get confused. So if you want an answer in this forum, my questions would be:

1. What happens when the client writes a check? Where does it go?

2. What happens when the client approves a payment? Where does the money come from, and where does it go?

3. What bank accounts are involved in all this? Who owns the money in each account?

[rjaley]

I think it would be best if you call our support line on this.

I've tried to answer with basic descriptions of how Goldenseal handles escrow, but I really can't give a specific answer for your case, since I don't know the details of how you are getting payments, and how the various bank accounts are set up.

Generally, what we try to do is "follow the money" in this type of support question. Otherwise, it's easy to get confused. So if you want an answer in this forum, my questions would be:

1. What happens when the client writes a check? Where does it go?

He sends a check to us from anywhere from $100,000 to $500,000. to be used toward future billings. We have to put it in some kind of insured bank account, savings, money market, he does not care, it is up to us.

2. What happens when the client approves a payment? Where does the money come from, and where does it go?

It gets withdrawn from the "savings/money market account" and then deposited in to our company checking account, the with drawals match the approved invoices just as if it was an individual check.

3. What bank accounts are involved in all this? Who owns the money in each account?

The client "owns" the money in the "savings/money market account" until approved, but the account is in our name and managed by us at the same bank as our checking account.

.................................................

[Dennis]

So from #1, it sounds like the money is yours. But from #3, it sounds like it is not.

Goldenseal's little C++ brain can't handle that kind of uncertainty. It's an accounting program, and likes things to be black & white.

Resolve that issue, and it will be easier to figure how to set things up. Unfortunately, we don't have a way to create a "half-escrow" account, with some of the money yours and some not.

[rjaley]

The money is his until he approves a payment application.

[Dennis]

We definitely don't have any way to have one bank account that is part your money (items approved) and part someone else's (items not approved). I can't imagine that we'd ever want to add that as a feature, either. Just too complicated and confusing.

If there's a dispute, death or disaster, that kind of fuzzy-ownership account sounds like a lawsuit in the making. Both parties would probably lay claim to the whole account.

I would suggest the following, in Goldenseal and in reality:

1. Have an escrow account, and consider it as the client's money.

2. When payments are approved, transfer the funds to one of your accounts. Then you don't have to worry about losing the money, and accounting will be normal. You can set up a special checking account for the one job if you want, or just use your regular account. You'd have to use Deposit Funds to get the money into your account, so it's credited as income. I guess in the escrow account it would just be a Bank Check or Payment, paid to you.

3. Pay for expenses from your bank account(s) just like you normally do.

Maybe there are other alternatives, but the above is what I'd do.

[rjaley]

When the money is in the "Escrow account it is his. Once he approves a payment that amount becomes ours, nothing fuzzy.

What happens when you use "Other transfer or other payment" does GS view that as if I took a cash withdrawel from the escrow account?

[Dennis]

What happens when you use "Other transfer or other payment" does GS view that as if I took a cash withdrawel from the escrow account?

What you mean by an "Other transfer" or "Other payment"? I couldn't find where we use those terms in Goldenseal.

I haven't tested this, but I don't think we do anything special if you transfer money between an escrow account, and one of your own accounts. As far as I know, it would just change the balances in the accounts, and not be considered as income or expense.

[glbuild@verizon.net]

Can't you just have the $ in a joint-named bank account, with both parties' signatures required for withdrawal? Then when you bill the customer, he writes a check from that account to your company, and you sign the second signature line on that check and deposit it in your Co. account. That would save this work-around, no?
Jim

[Dennis]

Well, I hope this discussion so far has been helpful for you, Jud and Deb. It has been for Turtlesoft!

From a programming point of view, right now Escrow accounts act just like a regular Checking account. The only difference is that they aren't included as an asset in the Balance Sheet report, and they don't show up in cash-basis P&L, income tax reports, etc.

We don't address the accounting implications of transfers between Escrow accounts and regular bank accounts, and we either need to do that, or eliminate the option to make those transfers.

For any other deposit of funds from a customer, you'd create an invoice, and then enter the deposit for it via Deposit Funds. The deposit is linked to the invoice, or else it's "paid on account" and credited later. We have a payment method field but it really doesn't matter whether it came from a check, cash, credit card or whatever. We still handle it exactly the same.

I guess in this case, you'd probably like to make a simple bank transfer from Escrow to Checking, but then we lose that paper trail that we have from regular payments. Bank Transfers are meant to shift funds from one of your bank accounts to another, which is neither income nor expense. That means they don't include any fields that link them to an accrued expense (as we do with Bank Checks and Payments), or to accrued income (as we do in Deposits).

In other words, shifting funds to an Escrow is a cash expense (but with no way to ID it against a Material Purchase or whatever). Shifting funds from an Escrow is cash income (but with no way to ID it against a project invoice, or whatever). That makes me think we should just remove all options to do transfers between Escrow accounts and regular bank accounts.

[rjaley]

Well, I hope this discussion so far has been helpful for you, Jud and Deb. It has been for Turtlesoft!...............That makes me think we should just remove all options to do transfers between Escrow accounts and regular bank accounts.

Yes, As far as we are concerned I think that makes sense. If we could make a simply "Cash" withdrawal for the amount of a specific invoice from an escrow account and attach a note to the transaction as to what it was for (To pay GS invoice no# 43 or whatever) that would work.

We could then make a corresponding "Deposit" into our regular checking account to pay invoice no# 43 or whatever.

As far as I can see there is no way to make a "cash" withdrawal from an escrow account, it must transfer to a GS checking or savings account.

[Dennis]

You first need to decide who owns the money in this account-- you, or the client. From what you have said so far, it sounds like it belongs to the client.

In that case, create an Escrow account. It manages the client's money, and it is totally unrelated to anything else in Goldenseal. Think of it as a little stash of cash with a brick wall between it, and the rest of your accounts. Add a moat and some alligators, if you wish.

When money in the account is approved and becomes yours, create a Bank Check or Payment from the Escrow account, and pay it to Owner. If you haven't already set up an Owner for your business, do that first. That takes the money out of the Escrow account.

Meanwhile, in the main part of Goldenseal, use the Billing command to create an invoice for the work. The use the Deposit Funds command, and deposit it into one of your bank accounts. That puts the money into your account, and links it up with your accrued/earned income.

There won't be any specific link between the deposit and the Escrow withdrawal, because of that brick wall. However, you could add some comments to explain it. I guess you could also create a Payment Method called "from Escrow" or something like that.

This means that you can't have a mix of your funds and the client's in the Escrow account. There's no way to make sense of that. You also can't pay project expenses directly from the Escrow account.

It will NOT work to do a transfer. That will shift the funds, but it won't link up to your earned income. In 4.3 we are going to stop allowing transfers between Escrow and other bank accounts, so we can better maintain that brick wall between your funds, and the client's.

[rjaley]

..........
When money in the account is approved and becomes yours, create a Bank Check or Payment from the Escrow account, and pay it to Owner...............

If I pay it to the owner (Me) won't that show up as part of my salary in the P&L and other reports? (I take a weekly fixed draw check regardless of how many hours I work.) Or will that be the same as if I just made a "cash withdrawal" from the escrow account?

[Dennis]

If I pay it to the owner (Me) won't that show up as part of my salary in the P&L and other reports?

Again, remember the brick wall. Anything that happens in the Escrow account is from the point of view of the client. They just paid you some money. It has nothing to do with YOUR finances, and has no effect on them.

You'll handle your salary in Goldenseal just like normal. YOUR end of the transfer happens when you deposit the money, just the same as if there is no escrow account at all.

BTW If you find this split between escrow and your own finances confusing, it might be better not to use an Escrow account. Set up a separate company file for the owner, and just use that to maintain the escrow account. Then you won't need a "virtual" brick wall, because you'll have a real one.

[rjaley]

Understand about the brick wall, so I :

Pay to owner >>Account>> Jud Aley

What about.....

Transaction Paid>> Paid on account/Equity transfer/Direct expense/Paid as gift ?

Or does it not matter because of the "brick wall"?

[Dennis]

Use Paid on Account.