Those located in Asia-Pacific will use the term Trust Account, where customers located in Europe will use the term Client Account. For the purpose of this article, we will refer to it as a Trust Account. For more information on regional terminology, refer to this article or contact support.
There are a few different options for managing a reserve fund on Re-Leased.
OPTION 1 - Reserve/sinking fund held in a separate ledger within the same trust account
You would have a separate ledger set up for the reserve fund, in addition to your service charge. This would be to keep the physical funds separate to the service charge but maintain them within the same client/trust account.
Your reserve fund is budgeted for as part of your service charge budget and collected into the service charge ledger along with all other money. At the end of the service charge year you would:
- Raise an expense invoice on the service charge ledger, using the reserve fund chart of account in your budget for the total collected, dated using the last date of the service charge period
- Raise an income invoice on the reserve fund ledger for the same amount
- Pay the expense invoice (using 'Disburse Funds')
- Create a manual bank statement that totals zero but details a spent item and a received item for the same amounts: that of the budgeted reserve fund
- Reconcile the bank statement payment item against the paid expense invoice from step 3
- Reconcile the bank received item against the income invoice created in step 2
This will then mean the reserve funds have been moved to their own ledger, the budget vs actual will show the full amount budgeted as the actual amount too, and you can use the reserve fund ledger to pay for any major works.
OPTION 2 - Reserve/sinking fund held in a separate client/trust account
You would still have a separate reserve fund ledger set up, but this would be held within a completely different trust account.
Your reserve fund could still be budgeted for as part of your service charge budget and collected into the service charge ledger & client/trust account along with all other money. At the end of the service charge year you would:
- Raise an expense invoice on the service charge ledger, using the reserve fund chart of account in your budget for the total collected, dated using the last date of the service charge period
- Raise an income invoice on the reserve fund ledger for the same amount
- Pay the expense invoice (using 'Disburse Funds')
- Physically transfer the reserve funds from the bank account where the service charge is collected into the bank account where the reserve fund will be held
- When you import your bank statement, on the service charge client/trust account, showing the payment leaving your account, reconcile the payment item against the paid expense invoice from step 3
- When you import your bank statement, on the reserve fund client/trust account, showing the receipt coming in, reconcile the received item against the income invoice from step 2
This will then mean the reserve funds have been moved to their own ledger within their own client/trust bank account, the budget vs actual will show the full amount budgeted as the actual amount too, and you can use the reserve fund ledger to pay for any major works.
OPTION 3 - Reserve/sinking fund held in the service charge ledger with all other funds
You do have the option to keep the reserve fund within the service charge ledger and manage it within where it is collected. Not a popular option as most people like to separate these monies, but it's not impossible.
Your reserve fund would be budgeted for as part of your service charge budget and collected into the service charge ledger & client/trust account along with all other money. At the end of the service charge year you would:
- Raise an expense invoice on the service charge ledger, using the reserve fund chart of account in your budget for the total collected, dated using the last date of the service charge period
- Raise an expense credit note on the service charge ledger, using the reserve fund chart of account in your budget for the total collected, dated using the first date of the next service charge period
- Allocate the credit note from step 2 against the invoice from step 1
Although on Re-Leased you cannot raise accruals/pre-payments, this will effectively accrue the reserve funds collected and carry them forward. The budget vs actual will show the full amount budgeted as the actual amount too, and you can use the service charge ledger to pay for any major works. Each year you would need to ensure that you continue to accrue any funds brought forward - the idea being that the accrual would get larger unless major works occur then it may decrease with those costs.
Note:
The first two options it specifies that the transfers need to happen at the end of the service charge year for the full amount, you do also have the option to do them incrementally throughout the year. If you have a major works project going on, you may want to transfer what's been collected once a month/quarter for cash flow purposes.