Accounting for renovation escrow account

[Matt Kowske]

Hi, I am struggling to figure out how to represent this correctly in
GnuCash.

I have a rental property that is financed with a mortgage from a lender.
This lender also has allocated a renovation escrow account for us to do
improvements to the property. The amount of this account is 25k. Through
the course of the next several months we will be doing improvements to
the property (out of the business checking account) and then will be
re-imbursed from this escrow account when all the work is done.

Initially I had setup an assets/AR type account called "Renovations
Receivable". Improvement costs would be made from checking to this
account and then from the escrow account upon reimbursement. Then I
realized no where in that chain is there an expense being made to
building improvements which is important because that is tax deductible.
This account though would be nice because I would always know what we
are owed from the escrow.

My other thought was to just enter every thing as the appropriate
expense category as we do them and then reimbursement would just be a
transfer of fund from the escrow account to checking, bypassing the AR
account. I guess I don't know which is "correct".

Are either of these the right way to do it?