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All service charge transactions are held in the nominal ledger (also called the general ledger). This ledger contains accounts of each asset and liability and supports the trial balance, which is in turn based on double entry book-keeping. This means that every accounting transaction has 2 parts or ‘sides’.

Our managing agent holds one physical bank account and their system allows them to allocate funds for the separate services carried out by what are called ‘notional accounts’. Typically each development scheme (block) has 4 notional accounts which in turn become trial balances in their own right, enabling the preparation of the year-end service charge accounts.

  1. Service Charge: This is where all income and expenditure for the service charge is recorded;
  2. Ground Rent: For managed schemes for which they also prepare the statutory accounts for the freeholder, the notional account becomes used to record the movement for these accounts, i.e. ground rent income which belongs to the freeholder.
  3. Reserve Fund: For our scheme this was established to link tenant debt that came across from the previous agent because they used to demand service charges and ground rent individually. The current system combines the contributions to these two funds to one figure. Receipts for these fall into notional account 1. The figures in this account are combined with that of notional account 1 when the service charge accounts are prepared.
  4. Directly Recovered Costs: The movement through this notional account is for referral fees collected from tenants when they are referred to our company solicitor for arrears recovery. These are distinct from both the service charge and freehold monies and are therefore administration charges.

All transactions on the system are reconciled to the physical bank account on a daily basis by the accounts receivable team.

 

 

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