Instructions

A common practice in property management is to require a new tenant to pay the last months rent at the beginning of their lease. In most cases the manager holds this money as a liability, much like a security deposit, until the time comes to use it for the tenant’s rent, at the end of the lease. In some cases they hold the money in the income account in the 4000-4999 range. In Demonstration #1, the 2020 pre-paid rent liability account will be used. In Demonstration #2, the rent income account 4000 is used. These demonstrations apply to Cash based Accounting only, not to Accrual.

If you apply your prepaid rent to an Income account, it affects Management Fees and Owner’s Checks for the month received. If you apply your prepaid rent to a Prepaid Rent Liability account it does not affect Owner’s Draw or Management Fees until the month it is taken from Prepaid Rent and applied to the rent charge for the 4000 Rent Income account.

The following demonstrations apply to Cash based Accounting only, not to Accrual. Check your Preferences in Setup/Preferences/System Preferences to determine whether you have set up your data file to apply prepaid rents to Income or Liability accounts.

Basically this is a two-part transaction.

1) Write the tenant a check. Writing a check to the Tenant does not impact the Tenant’s Ledger balance. You will see the check noted on the ledger, but it will not affect the balance due on the Tenant Ledger. The purpose of the check is to physically return the money to the tenant and put a placeholder on their ledger (the check entry) indicating that you have done so.

2) Make a charge to the Tenant’s 4000 account to balance out their ledger. Note on the charge that it’s an offset to the overpayment. The purpose of this entry is to impact the ledger.

Demonstration #1-Prepaid Rent to Liability

Upon leaving, the tenant may or may not be due a refund. If your original transaction was to apply the rent to the prepaid liability account follow the appropriate steps below

- No Refund to Tenant and you intend to use the prepaid rent to pay the last month’s rent for the Tenant.

- Go to Accounting>>Tenant Charges>>Tenant Charges, click add, select tenant, enter date, enter the rent income account (usually account 4000), enter a memo (optional), click OK.

- Go to Accounting>>Tenant Payments, click Credit, select the tenant, enter date, enter amount, enter a reference number, receipt number, and memo (optional). In the “Acct to Apply Credit” field, enter account 2020 (or the account you created). Check the payment distribution for accuracy to determine that the credit is going to the correct charge, then click OK.

- Refund Due to Tenant:

- Go to Accounting>>Checkbook and click on “ADD”. Choose the “Tenant” Option for the check. Choose the bank account that you originally used to receive the money into. In the body of the check choose the property associated with this tenant, choose account number 2020, and enter the amount due to be refunded to the tenant. The check will show on the Tenant Ledger, but will not affect the ledger balance. It will only affect your Bank Account and the 2020 account.

- Go to the Tenant Ledger and create a charge to 2020 to offset the payment that is in there. This will not affect your financials because in Cash based Accounting charges do not affect financials, only payments impact your financials. This step will balance out the Tenant Ledger.

- By following the steps above you have:

Reduced your cash account by writing a check to the tenant, removed the prepaid rent from 2020, and balanced out your Tenant Ledger.

After the credit payment is entered, the tenant’s last rent charge will now be paid, and the prepaid rent liability account will be updated. This money will now be considered income and management fees and owners checks can be created as usual.

Demonstration #2-Prepaid Rent to Income

Upon leaving, the tenant may or may not be due a refund. If your original transaction was to apply the prepaid rent to income, follow the appropriate steps below

Final Transactions:

- No Refund to Tenant and you intend to use the credit to pay the last month’s rent for the Tenant.

- Create a charge to offset the credit balance that is on the Tenant Ledger. Go to Accounting>>Tenant Charges>>Tenant Charges, click add, select tenant, enter date, enter the account in the 4000-4999 range you are using, enter the amount.
- Go to Accounting>>Checkbook and write a check to the tenant, from the asset account (1000 or 1030) you are using to hold the prepayment/overpayment.

- Refund Due to Tenant:

- Go to Accounting>>Checkbook and click on “ADD”. Choose the “Tenant” Option for the check. Choose the bank account that you originally used to receive the money into. In the body of the check choose the property associated with this tenant, choose account number 4000 (or the income account you applied your prepayment to if you do not use 4000), and enter the amount due to be refunded to the tenant. The check will show on the Tenant Ledger, but will not affect the ledger balance. It will only affect your Bank Account and the 4000 account.

- Go to the Tenant Ledger and create a charge to 4000 to offset the payment that is in there. This will not affect your financials because in Cash-based Accounting, charges do not affect financials. Only payments impact your financials. This step will balance out the Tenant Ledger.

- By following the steps above you have:

Reduced your cash account by writing a check to the tenant, removed overstated income from 4000, and balanced out your Tenant Ledger.