Funds Received In Trust

by Rita

Management company and funds ear-marked for travel expenses.

Hello, my newest client manages music groups, mostly indie bands.

Occasionally she will go on a short tour or promo trip with them. At the beginning of the trip they will give her several thousand dollars. She deposits the money into her bank account and uses her bank card during the trip to pay for all the expenses of the band and crew.

None of this money is ever hers, and none of the expenses. But the transactions are on her bank statement.

How do I account for this ? I'm thinking perhaps, as the money is deposited into her bank account, DR Bank Acct / CR a special Accts Payable account ? Code all expenses flowing through this special account also, until the balance is zero (or as close to as it gets, with the final balance being either income or expense to my client) ?

Am I even correct in assuming the $$ received are not income? I would think so, based on ''intent".

Thanks for any advice . . .

image of fancy scroll lines

Hi Rita,

I would treat the funds as a liability not income.

If it were me, I would open up a separate bank account as a "trust" account and deposit monies received there. This isolates the funds and makes it easy to do an accounting of how the funds were used.

In absense of that, your solution is the next best thing. Tracking it in a special account ensures all the monies are easily accounted for. The danger I see for the client is they can be tempted to use the funds for their own personal and/or business use.

I might even consider having your client prepare an expense report for each trip where she attaches all her receipts. This makes the reporting a bit more formal and ensures you have proof of receipt as well as proof of payment.

I'm not sure what the GAAP requirements are for this, but having a well named liability account will assist the accountant at year-end. Any possible reclassification will be easily done.

P.S. I would like to remind you there is a difference between information and advice. The general information provided in this post or on my site should not be construed as advice. You should not act or rely on this information without engaging professional advice specific to your situation prior to using this site content for any reason whatsoever.

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