Tuesday, May 28, 2013

Payments between accounts


Hi Kerry,

I just had a question about how to handle transfers between separate bank accounts for separate QuickBooks files (same client).

I was sure if I should make the deposit into an Equity account or Other Income.

The money from the first account ("A") is the Business account. The client writes checks from A account to the Family Trust Account ("B").

The deposit into B account is not income because it was already income in the A account. 

Just no sure how to categorize the deposit from A to B...

Please let me know if you can help.




How to properly handle these kinds of transfers in QB depends on the ownership of the accounts.  Each QB company file should coincide to a tax return.

If both bank accounts are owned by the same tax entity, they should both be in the same QB company file.  You can then use the "Transfer Funds" function to move money between accounts.

You mentioned the second account as being a family trust.  What kind of trust is this; revocable (aka Living) or irrevocable?

If it is a living trust, that is considered for tax purposes to be a disregarded entity (no separate tax return required) and the account should be in the same 1040 QB company file as all of the other personally owned accounts.

If the trust is irrevocable and a 1041 is filed for it each year, it should have its own QB company file that will match up to the trust's 1041s.

If the trust is a separate tax paying entity and has its own QB company file, it should have balance sheet accounts to handle payments between it and the trust's owners.  If there are to be repayments back to the owners, a Liability account would be appropriate.  For money that won't be repaid, an Equity account for the owner's investment in the trust would be appropriate.  Entries into either of these accounts would have no effect on the trust's income.

To mirror the payments to the trust, there should be Asset accounts set up in the 1040 company file; one for Loans To Trust and another for Investments in Trust.  At any point in time, the balances in the 1040 accounts should match their corresponding accounts in the 1041 company file.

Good luck.  I hope this helps.  As always, it would be best if the tax preparer for the 1040 and 1041 is involved in helping to set up and synchronize the QB company files with the tax returns.

Kerry Kerstetter



Great, thank you so much! I have been struggling with this and recommending for a year now to combine the accounts. I do not file their taxes, so I do not know if there is a separate return for each account. I will find out and take appropriate steps!

Thanks again!