Setting up a holding fund

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Turning Point
Posts: 41
Joined: Wed Feb 08, 2017 4:54 pm

Setting up a holding fund

Post by Turning Point »

Our church is beginning a major renovation of our building. According to Oregon law we are required to withhold 5% of each invoice and keep it in a "retention account".

We have a renovation fund already set up for smaller items we've had done.

Am I correct in thinking that I should set up a liability account (24-2050-000) under our renovation fund to hold the money until the end of the job?

Lisa

NeilZ
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Joined: Wed Oct 08, 2003 1:20 am
Location: Dexter NM
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Re: Setting up a holding fund

Post by NeilZ »

Turning Point wrote:
Tue Apr 13, 2021 2:48 pm
Our church is beginning a major renovation of our building. According to Oregon law we are required to withhold 5% of each invoice and keep it in a "retention account".

We have a renovation fund already set up for smaller items we've had done.

Am I correct in thinking that I should set up a liability account (24-2050-000) under our renovation fund to hold the money until the end of the job?

Lisa
Since this these are funds that you are eventually required to pay out, a liability account is a good way to handle it. In this way you can expense the proper expense account for the full amount at the time of the invoice, yet retain what you have to pay later.
Neil Zampella

Using PC+ since 1999.

Turning Point
Posts: 41
Joined: Wed Feb 08, 2017 4:54 pm

Re: Setting up a holding fund

Post by Turning Point »


Since this these are funds that you are eventually required to pay out, a liability account is a good way to handle it. In this way you can expense the proper expense account for the full amount at the time of the invoice, yet retain what you have to pay later.
Sorry to bother again. I just want to make sure I have done this properly. We made our first payment to the contract. The invoice was for 14227.19.
I credited our checking for that amount and debited the expense account for 13515.83 and the retention fund for 711.36.

The retention liability acct now shows (711.36) and 14227.19 in the credit column of the expense account although the check printed for the correct amount of 13515.83.

For some reason I thought the expense account would have shown 13515.83 so now I'm thinking I did something wrong.?

NeilZ
Posts: 10209
Joined: Wed Oct 08, 2003 1:20 am
Location: Dexter NM
Contact:

Re: Setting up a holding fund

Post by NeilZ »

Turning Point wrote:
Thu May 13, 2021 3:45 pm

Since this these are funds that you are eventually required to pay out, a liability account is a good way to handle it. In this way you can expense the proper expense account for the full amount at the time of the invoice, yet retain what you have to pay later.
Sorry to bother again. I just want to make sure I have done this properly. We made our first payment to the contract. The invoice was for 14227.19.
I credited our checking for that amount and debited the expense account for 13515.83 and the retention fund for 711.36.

The retention liability acct now shows (711.36) and 14227.19 in the credit column of the expense account although the check printed for the correct amount of 13515.83.

For some reason I thought the expense account would have shown 13515.83 so now I'm thinking I did something wrong.?
The transaction should look like this (all accounts numbers are examples):

01-5500-000 Construction Expense DEBIT 14227.19
01-2254-000 Invoice Retention CREDIT 711.36
01-1110-000 Checking CREDIT 13515.83

Liability accounts are CREDITED to show additional funds and DEBITED when using the funds.

So when you have to pay out the retention amount it will look like a normal check with a debit and credit

01-2254-000 Invoice Retention DEBIT 711.36
01-1110-000 Checking CREDIT 711.36

It looks much the same as when you pay your payroll withholding taxes from the tax liability account.

When you run a balance sheet as of today, you should see a positive number for the liability account. If you don't see any entry, then there is a negative balance in the liability account.

Does this help?
Neil Zampella

Using PC+ since 1999.

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