Different Ways to Deal with Construction Escrow Accounts in your Bookkeeping – Part 1

This article deals with Construction Escrow Accounts.

A construction escrow account can be viewed similar to a line of credit.

A lender loans to you a bulk sum of money, however this money is not disbursed to you all at once. Instead, you must submit periodic requests (such as in monthly intervals) to obtain a portion of these moneys that were already pledged out to you.

You will need to consult with a Certified Public Accountant as to the proper treatment of these Construction Escrow moneys (typically used by home builders) in your books.

These pledged moneys can certainly count as a loan in your books (again, consult with a C.P.A.), even before anything was ever disbursed out to you. This is because you, as the home builder, have already signed a contract, via loan closing statement, stating you accept this obligation, in return for moneys to withdrawal at later dates (for stated purposes of building a home). So, in essence, this can be also viewed as a flexible spending account that gives to you an allowance upon request and approval.

However, tracking the exact ongoing balance of moneys that are being disbursed to you on a periodic but continuous basis can present bookkeeping challenges, mainly due to how the escrow finance company presents this constantly changing information to you. But it is something you need to reconcile your books to, at least monthly and certainly upon the completion of the project (home-build) and payback of this loan (along with the proverbial interest fees that were charged to you (your project) as well).

In future blogs, I will discuss two popular ways (presented below) that lenders can divulge this Construction Escrow activity and balance information to you and how to reflect this in your ongoing bookkeeping. Certainly, there will be additional ways to present and track this information in your books, but, for purposes of this blog series (and for now), you can view and reconcile your Construction Escrow balance based on either:

1. Construction Escrow disbursed funds accrued, or
2. Construction Escrow moneys remaining in your loan account

Note: AccuraBooks is a bookkeeping firm only, so please consult with your C.P.A. for verification and clarification about the contents of this article.