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Residential letting agent and client bank accounts

Should what are essentially client funds be reported as assets in the balance sheet?

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I have taken on a residential letting agent where the previous accountant included a number of company bank accounts from the balance sheet, eg. client current account - which collects tenant deposits, pays landlords and from which the agent's commission is transferred, and a tenants account which collects the deposits at the beginning of the lease and pays out to the tenant at the end of it. These assets are counter-balanced by creditors, so the net assets are unaffected.

Typically, I have thought that these accounts would not be included, but I have a note that says the interest earned on the accounts is retained by my client. Maybe this is a determining factor?

Does the panel think the bank accounts should be included, should be excluded or does it not really matter either way?

 

Replies (20)

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By johngroganjga
26th Sep 2018 11:26

I would exclude them, as they are not assets of the company.

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RLI
By lionofludesch
26th Sep 2018 11:26

I agree with including them as assets and matching creditor.

The bank accounts are in the company name so it follows that they should be included as assets.

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Replying to lionofludesch:
By johngroganjga
26th Sep 2018 11:29

The names of the account will include the crucial words “client account”.

They do not meet the definition of assets available to the company.

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Replying to johngroganjga:
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By andy.partridge
26th Sep 2018 11:48

John, could the rentention of the interest earned be a relevant factor?

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By johngroganjga
26th Sep 2018 13:37

Not in my opinion. The relevant factor is whether the company is free to make use of the money in the account as it pleases. Clearly it isn’t.

This question as as old as the hills. It’s most often asked about the accounts of solicitors. It’s not uncommon to find client money on the balance sheet, as you have found in the previous accounts of your new client, but strictly speaking it’s not right.

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By Bobbo
26th Sep 2018 14:11

I say these accounts should be excluded for the same reasons as John.

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paddle steamer
By DJKL
26th Sep 2018 16:59

Bit concerned they are holding tenant deposits- must admit England is different from up here ,so maybe this is still prevalent down south, but if residential letting (not commercial) then generally agents holding deposits is not that clever re the potential fines/damages that can be awarded if the protection legislation is not followed; we paid ours all over to one of the protection schemes years ago and have subsequently stopped residential letting.

https://www.gov.uk/tenancy-deposit-protection

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By andy.partridge
26th Sep 2018 17:10

The agent holds the deposits under the TDS insured scheme (as opposed to the custodial scheme).

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By carnmores
26th Sep 2018 20:12

Quite usual

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paddle steamer
By DJKL
26th Sep 2018 21:03

Not sure that is an option up here, but thanks for info, appreciated. (Not that I really expect to ever be involved with lettings below the Tweed)

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By lionofludesch
26th Sep 2018 21:57

DJKL wrote:

Not sure that is an option up here, but thanks for info, appreciated. (Not that I really expect to ever be involved with lettings below the Tweed)

But what about Berwick ?

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www.maintworks.co.uk
By MWS01
13th Oct 2018 23:36

I agree with John. We specialise in Letting Agent back office, bookkeeping & accounts which has become very technical in recent years and i can see where the confusion may arise.

Money in the client account does not belong to the company and so should not be included on their accounts.

They should transfer their fees from the client account to the current and that is their turnover. Typically banks do not offer interest on client accounts but if it has been received, we would add it as an additional revenue source and transfer it to the current acc along with the fees.

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ALISK
By atleastisoundknowledgable...
14th Oct 2018 08:04

Going against the flow, I would (and in fact have) treated it the same as lion, for the same reasons.

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By lionofludesch
14th Oct 2018 12:07

Probably the key question is ... "in the case of an insolvency, would those funds be treated as part of the assets to be distributed ?"

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By Tax Dragon
14th Oct 2018 14:05

The answer to which presumably depends on whether the money is merely owed or is held in the capacity of trustee/agent.

It's the latter, isn't it?

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www.maintworks.co.uk
By MWS01
14th Oct 2018 16:05

The latter in my opinion. Rent held belongs to the landlord, deposits to the tenants. The agents bit is typically their management fee.

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By lionofludesch
14th Oct 2018 16:14

It's not down to an opinion.

It's what the agreement with the bank says.

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By Tax Dragon
14th Oct 2018 16:47

Whose agreement with what bank? I think I'm missing part of the question.

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By WhichTyler
14th Oct 2018 16:15

The latter in my opinion too, as the money in the client account isn't actually under the control of the estate agent (unless the agent breaches their agreement with the client; it can be withdrawn at the request of the client) and economic benefits flow to the client not the estate agent. So it doesn't meet the definition of an asset.

It may be practical to do the book-keeping this way so that everything is in one entity, but it shouldn't be presented this way in stat acs.

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By [email protected]
05th May 2019 03:00

I was dealing with the accounts of a letting agent and had exactly the same case in front of me with following facts:
1. Agent opened a bank account for receiving /depositing rent from tenants and paying out to landlord.
2. Bank account was opened in letting business name.
3. There were no strings attached with this bank account in agreement between agent and landlord. However, under agreement between agent and landlord, agent was under legal obligation to pay landlord rent collected after deducting agreed management fees.
Analysis of these facts led me to treat cash at bank (client account )
As asset on the following grounds;
1. There were no restrictions on agent to operate this bank account. In case of emergency, he could withdraw money to meet his business expenses which is an indication of control irrespective of his obligation to pay to landlord the collected rent minus his fees.
2. Under ias32, cash is a financial asset by default.
3. If we have a look at the balance sheet of some companies under cash and cash equivalent we some time see cash at bank held under lien. This shows a restriction on use of funds available in the bank account but still accounted for as an asset. A note is given about restriction.

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