Bills are sometimes paid by members of the family or other individuals on the basis that they are reimbursed once there is cash raised during the administration of the estate. For example, Mr. Frank Smith pays a funeral account of £1275.50.
The steps to be taken to track such an event are as follows:
- Add details of the expense, either as a liability or administration expense.
- Enter payment details for the expense (date paid and cash account). The cash account's name should be the same as the individual paying the account (e.g. Mr. Frank Smith's a/c) this will create a new cash account "on-the-fly".
- The balance sheet will then show the individual's cash account with the amount outstanding – it will be an overdrawn account.
- When a cheque is eventually paid out of the client account to reimburse the individual, use the 'Funds Transfer' facility to record the movement from Client account to the individual's account for the amount reimbursed.
- This will clear the individual's account and the client account will show a debit of the sum paid.
NOTE : If the individual concerned happens to be a residuary beneficiary, you do not credit their distribution statement with the amount paid. The fact that they paid an expense on behalf of the estate has no bearing on their final entitlement.
Similarly, if the individual receives a payment to offset the amount owed (E.g. by keeping the cash in the house) then their cash account can be used to record this transaction. In this instance the cash received will be entered as follows: -
- Enter the "Cash in house" as an asset in the normal way.
- Realise (i.e. collect) the cash in house into the individual's cash account. (e.g. Mr. Frank Smith's a/c – already set up as described above)
- The individual's account will now show the cash they have received with details of the payment made on behalf of the estate with the net amount due to him.