Lettings Company Accounts

Hollysan

Good morning everyone,

I have been asked to do some accounts for a lettings company. Their sales come in the form of rent on houses and flats, and they have a system of paying the landlord, transferring money into the Deposit Lodgement Scheme (which is returned to the client when they move out), and the balance is their commission, which they keep. I am unsure how to reflect this in the accounts. The commission is easy, that's the sale. What about the Deposit money? It's not really a liability of the business as it's not held by the business, but it does have to be reflected in the accounts. Should I just set up a Deposit Scheme account as a long-term liability?

Also, paying the landlords is not really an expense but needs to be shown as a payment in some way. Not sure how to categorise it. I will be using software.

Has anyone else worked for a lettings company? Is there a set way of dealing with these transactions?

Any advice gratefully received.

Hollysan

T.C.

Deposits - short term liability on the spreadsheet.

Andy Blyth

The deposit scheme account needs to be shown in the balance sheet as an asset, like a bank account, as that's effectively what it is.

Also, the company has a legal obligation to return that money to the tenant, so that is a liability on the balance sheet.

so:-

Dr Deposit Scheme Account (Asset)
Cr Deposits refundable (Liability)

The net effect on the balance sheet is nil.

Whether it should be allocated to short-term or long-term liabilities will depend on the length of the lease. If the lease is 2 years and you know the deposit won't be returned until after that time, then its a long-term liability (more than 1 year).

If its a 6 month lease, it would be a current liability (less than 1 year).