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Commercial Property Service Charge Double Entry

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Hi All,

I am working in retail sector and need to manage multiple sites rent, service charge and insurance. They are leased property and we use normal accounting software like Xero rather than property management software. The landlord/managing agent will send us the rent, service charge quarterly. I have several questions here:

1. The rent invoices are issued quarterly on dates of 25 Mar, 24 Jun, 29 Sep and 25 Dec. We normally paid them in advance. My understanding is that I put the invoice to prepayment account and set up repeating manual journal on every calendar month end transferring from the prepayment to rent account. I am not sure if it is right to do this double entry at month end since the rent period is ending 25 Mar, 24 Jun, 29 Sep and 25 Dec.

For example: the rent invoice period is for 29 Sep 2021 - 24 Dec 2021 at amount £5500, the tax point is 09 Sep 2021, we paid the invoice on 27 Sep 2021. I book the invoice into prepayment account on 27 Sep 2021, then do the double entry to transfer one month rent (for October rent) £1833.33 from prepayment to rent account on 31 Oct 2021. Please let me know if above understanding is right. Further question is that, if there is rent free period, how much should I book for each month on accounting software.

2. For the service charge double entry, our previous outsourced accountanut put the service charge into rates account, which I think is not correct. Should I create a new charter of account only for service charge issued by landlords/managing agents? For service charge double entry, is it the same logic to rent? The same question is as to building insurance. 

Thank you all in advance!

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By Paul Crowley
25th Nov 2021 11:08

Good idea to agree this with whoever does the accounts production
If a client or client bookkeeper did this I would assume it was because the client wanted monthly management accounts for their own benefit
For me it would just be extra unneeded journals

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By Bobbo
25th Nov 2021 11:15

Chelsey K wrote:

Hi All,

I am not sure if it is right to do this double entry at month end since the rent period is ending 25 Mar, 24 Jun, 29 Sep and 25 Dec.

I wouldn't worry about the 3-7 days difference between the quarter day and month end. You can adjust at year end if non-trivial.

Chelsey K wrote:

Hi All,

Please let me know if above understanding is right. Further question is that, if there is rent free period, how much should I book for each month on accounting software.

Monthly journal of 1833.33 sounds good - don't forget to clear out the remaining 0.01 at some point!

As for a rent free period, how much to book each month will entirely depend on how long the rent free period is. Whether it's worth dealing with the rent free period through the year or just adjusting at year end should be considered.

Chelsey K wrote:

2. For the service charge double entry, our previous outsourced accountanut put the service charge into rates account, which I think is not correct. Should I create a new charter of account only for service charge issued by landlords/managing agents? For service charge double entry, is it the same logic to rent? The same question is as to building insurance. 

Thank you all in advance!

It doesn't really matter a great deal. You can set up individual codes in Xero for each of these but then combine them for statutory accounts. Better to have too many nominals than not enough. (I have nightmares of a former audit client that had too few nominals in their Sage which required analysis to split for statutory accounts headings!)

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By kestrepo
25th Nov 2021 14:29

1. I don't think it would be an issue unless you are dealing with hundreds of properties. If you feel it is an issue then why not just calculate on the number of days rather than months - almost exactly the same calculation anyway!

2. Presumably the Service Charges will relate to real and identifiable costs. Do they need to be reconciled and adjusted annually and the customer given a breakdown and refund or invoice according to the the costs incurred? Perhaps the biggest cost was rates so it might have been posted there for that reason? Personally I would have two control accounts being one for the Service Charges and the other for the costs.

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By Paul Crowley
25th Nov 2021 14:49

"I am working in retail sector and need to manage multiple sites rent, service charge and insurance. They are leased property and we use normal accounting software like Xero rather than property management software. The landlord/managing agent will send us the rent, service charge quarterly. I have several questions here:"

Propert management software
Tends to be used by firms who are managing property
The people who send out service charge fees

As I read it You are acting for tescos (the retail selling people ) and preparing management accounts for tescos' many sites

As such simply recording the costs and looking to spread those costs over time

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