How do I reconcile a NYC property management escrow account?
Escrow reconciliation for property management isn’t just a bank reconciliation. It’s a three-way reconciliation, and all three numbers must match every single month. The three numbers are your bank balance (what the bank says is actually in the escrow account), the sum of all individual owner ledger balances (what you owe each property owner), and the general ledger trust liability (what your accounting system says the total trust obligation is). If any one of those three figures doesn’t agree with the other two, something is wrong and you need to find it before moving on.
Start with the bank reconciliation. Pull the month-end bank statement for the escrow account and reconcile it against your books the same way you would any other account. Account for outstanding checks, deposits in transit, and any bank fees or interest. The adjusted bank balance is your first number.
Next, pull every individual owner ledger and add up the balances. Each property owner should have their own sub-ledger showing rent collected, expenses paid on their behalf, management fees deducted, and the remaining balance owed to them. The total of all those owner balances is your second number. This is where most problems show up. A misposted expense, a rent deposit coded to the wrong owner, or a management fee pulled twice will throw this number off.
Your third number comes from the general ledger. The trust liability account in your books should reflect the total amount you’re holding on behalf of all owners combined. This should already tie to the sum of the owner ledgers if your entries are clean. When it doesn’t, it usually means a journal entry hit the trust liability account without a corresponding entry on an owner ledger, or vice versa.
The New York Department of State can audit property management companies and expects this three-way reconciliation to balance at any point in time, not just at month-end. That means you can’t let discrepancies sit for weeks while you figure them out. Commingling owner funds with operating funds or failing to account for every dollar in escrow creates real legal exposure.
A few practical rules that keep this process clean. Never pay operating expenses from the escrow account. Never deposit management company revenue into it. Every transaction in the escrow account needs to be traceable to a specific owner. And reconcile monthly without exception, even if the account seems quiet.
If you’re managing multiple properties and struggling to keep the three-way reconciliation balanced, the issue is usually in how your books are structured rather than in the math itself. M&H Accounting Services works with property and building service companies in the Bronx and across NYC and can help you set up a chart of accounts and owner ledger system that makes this reconciliation straightforward every month instead of a headache.
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