Is the Escrow on a rental property considered an asset or liability on the balance sheet?
Answers
If you mean the rental security deposits from the tenants, then they are both an asset as "Cash-Security Deposits" and a liability as "Security Deposits Returnable".
Thank you for your response, however, I have a real estate client that is turning over homes and renting them out in the mean time. He has the "escrow" listed separately than the mortgage and it shows up under assets in the balance sheet. This seems odd to me. I'm not sure how to handle the entries.
Thanks again.
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it's a liability account.
Your question lacks detail to answer it in any meaningful way. It would be a lot easier to help you if you will tell us what is in "escrow" or the nature of the money that is in escrow and which side of the transaction you are reporting from. Generally in a real estate transaction, "escrows" are just a temporary account and that is if your reporting date falls between payment (buyer) and final recording (property in your name). In essence, your escrow will be a substitute for the actual real estate asset prior to actually having the property under your name. In which case, you reverse (credit) the escrow and debit the real estate property.
P.S. I just remembered that escrows can also be used to hold in the borrower's name to pay obligations such as property taxes and insurance premiums.
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There was plenty of detail for me. The answer is it's a liability account.
Dear Emerson Galfo,
Actually you answered my question in your reply. I will ask the client what the nature of the escrow listed is. I will be able to book it accordingly. Thank you very much for your help!
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Did you decide it was a liability?
You’re debiting an escrow holding account and crediting an escrow liability account.