Service agreement Escrow Accounting is an advanced feature exclusively available only in Total Office Manager Enterprise Edition. Explained simply, escrow is when an asset (like cash) is set aside, pending fulfillment of a condition. Once the condition is met, the asset is free for use.
In Total Office Manager®, escrow accounting is the means by which up-front money collected on service agreement sales is set aside and held in a liability account, pending fulfillment of the actual work promised in the agreement. Once the date of a planned maintenance work order has arrived, then a certain amount of money held in the escrow liability account is free to be recognized as income. This process prevents all of the prepaid cash from being recognized as income prematurely, thus more closely adhering to accrual accounting principles and the benefits thereof.
For example, imagine the sale of a two-visit service agreement. The prepaid funds received from the customer is not yet truly income because no planned maintenance visits have taken place. If the customer canceled the agreement before completion of any maintenance visits, we would be liable to the customer for their prepaid money. It is only after each planned maintenance visit date has arrived, that half of the collected money can truly be recognized as income. Until the condition of performing a maintenance visit has been met, the money is kept in an escrow liability account.