For our Asia-Pacific customers, the term "Trust Account" is used, while European customers refer to it as "Client Account". It's important to mention that the Client/Trust Accounting functionality does not apply to customers in North America. For further information on regional terms, check out our Glossary of Regional Terminology.
This article aims to guide you on how to effectively handle a reserve or sinking fund. Managing a reserve fund is essential for future capital expenses or major works—and in Re-Leased, there are several ways to do this. Whether you intend to keep these funds in a separate ledger or account, or together with your service charge funds, we have outlined the steps to follow that will make the process efficient and transparent.
Option 1 - Separate Ledger within the Same Client/Trust Account
This option involves creating a distinct ledger for the reserve fund within your current Client/Trust Account, separate from the service charge, yet all under the same umbrella for ease of access and control:
- Raise an expense invoice on the service charge ledger, using the reserve fund chart of account, on the last date of the service charge period for the total amount collected.
- Raise a corresponding income invoice on the reserve fund ledger for an identical sum.
- Process the disbursement to pay off the expense invoice.
- Generate a manual bank statement with a zero total, which records the reserved amount both as spent and received.
- Reconcile this statement, aligning the payment with the expense invoice and the receipt with the income invoice.
By doing this, you successfully move the reserve funds to a dedicated ledger, and can monitor the budget against the actual funds while keeping them reserved for major expenditures.
Option 2 - Separate Client/Trust Account
If you prefer a more segregated approach, this option involves moving the reserve fund to an entirely different Client/Trust Account—which may offer additional clarity and financial separation:
- Following steps 1 and 2 from Option 1, raise corresponding expense and income invoices in your main and reserve fund ledgers.
- Disburse funds for the expense invoice.
- Transfer the reserved amount from your main Client/Trust Account's bank to the reserve fund's Client/Trust Account bank.
- Reconcile the outgoing payment in your main account and the incoming receipt in your reserve account against their respective invoices.
By maintaining separate accounts, you’ll enhance the clarity and integrity of your budget versus actuals and can manage fund allocation for major works with greater precision.
Option 3 - Service Charge Ledger Integration
If a more consolidated financial management approach works for you, consider keeping the reserve fund within the service charge ledger. Here’s how to manage it:
- As before, raise an expense invoice for the total collected reserve fund on the last date of the service charge period.
- Issue an expense credit note for the same sum, dated on the first date of the following service charge period.
- Allocate the credit note to offset the earlier invoice.
This method effectively rolls over the reserve funds for future use, maintaining transparency in your financial tracking.
Note: Options 1 and 2 suggest annual fund transfers, but you could also opt for periodic transfers throughout the service charge year, depending on your cash flow needs and ongoing projects.
[Add a screenshot showing how to create a separate ledger for reserve funds]
Handling your reserve or sinking fund is flexible and scalable to meet your unique requirements.
See these related articles for further assistance:
- Article 1
- Article 2