How would track Reserves?

rgaynor

Hi Folks,
I am setting up a Partnership for the sole purpose of owning and sharing an airplane. The partners will each pay a monthly amount and an hourly usage amount. Both of those will include "future expenses". For example Prepaying Monthly for our Annual Insurance, or Prepaying for Future Maintenance/Repairs. I am not sure if the term Reserves is proper, but basically we are going to have money deposited into our checking account and I need to see the amounts that are "spoken for". Then when an actual expense happens, I would need to categorize the expense properly to show where our money is going, but I would also need to reduce the "Reserve" account as well. Is this possible?
Thanks in advance.

rgaynor

I think I have this partially figured out - this is what I have done. I created a Liability Account for the Prepaid Maintenance, and coded the Members Payments so that Pre-Paid's go to the liability accounts and the rest goes to Misc. Income. Then when I make a maintenance payment, I create a journal entry that Debit's the Liability account, Credit's the Expense Account Repair and Maintenance, and Credit's the Checking Account and Debit's a (Contra Account) to balance. If this is appropriate, what type of account to I make the Contra account so that I can hide it from both the Balance Sheet and the P&L?

JulianP

Hey there @rgaynor !

It sounds like you are on the right track here by creating the Liability Account as this step is necessary for invoice prepayments and deposits. However, since these funds are being deposited and paid by your business partners and not customers, I believe you will need to record the initial fund deposit into the business as an Owner Investment deposit transaction and then allocate the funds accordingly. However, I would highly recommend reaching out to a registered CPA to ensure that you don't get incorrect advice on how to do your accounting. They will be able to point you in the right direct for your particular scenario.

rgaynor

Hi Julian,

Thank you for the feedback, in this case I think Liability is accurate because owners are paying for the hours they use the aircraft and those funds are now ear marked for maintenance. The owner has no "ownership" increase or rights to those funds any longer they are just ear marked for the future expense.

Rob