There are several ways for a Market Center to account for E&O. Confirm with your OP and Team Leader how your particular Market Center handles E&O. The following steps illustrate how to account for E&O monthly when your Market Center bills the agents through the DAs.
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If your Market Center charges a flat E&O expense through AccountEdge, all steps associated with accounting for E&O will be handled through your monthly checklist and there are no steps to be completed as part of the transmittal process. For more details, go to KWConnect and view the skills video on E&O: https://www.kwconnect.com/details/e-o-reserve-account (you must be logged in to view the video). |
- Using the Closed Sales Volume Report, highlight the amount of E&O collected through the DAs for the month.
- In AccountEdge, click Accounts. Click Record Journal Entry.
- Using the last day of the month in which you are transmitting, book the following journal entry using the amount listed on your Closed Sales Volume Report.
- Debit the account “E&O Collected from Agents.”
- Credit the account “KWR Excess E&O Reserve/Payable” for any portion of the E&O up to the account balance equaling 10% of the market centers average sales price or 25 percent of next year’s E&O Premium. The Excess E&O Reserve liability account is capped at the greater of 10 percent of the market center’s average sale price, or twice the market center’s KW Owner Profit, for the previous calendar year. The Excess E&O Reserve represents amounts collected from the agents over and above the current year’s annual E&O insurance premium. This reserve is used to pay attorneys’ fees, deductibles, settlements and other costs associated with the Market Center’s legal expenses.
- Credit the account “Special Events Payable” for the excess above 10% of the market centers average sales price or 25 percent of next year’s E&O Premium.
The balance for the account “KWR Excess E&O Reserve/Payable” should never exceed the IALC Profit Sharing Accounting Guidelines allowance without Regional Director and KWRI approval. If the account reaches the allowed balance, the excess can be placed in a Special Events account. For more information, refer to the Profit Share Accounting Policies and Guidelines in the Policies & Guidelines Manual under Resources > Culture on KWConnect.
- Debit the account “E&O Collected from Agents.”
- Click Record.
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