3 Tips To Make Your Property Management Accounting Easier

Property management accounting, also known as landlord accounting, involves precise and detailed accounting and financial reporting to analyse, assess, and manage a property management company's revenues, costs, and reserves. It aids in the evaluation of a property's economic performance. Maintaining accurate and consistent accounting is critical to achieving success in the property management business.

3 accounting tips for property managers:-

1. Choose a bookkeeping and accounting method

The first management decision you'll have to make for your property management business is which bookkeeping and accounting method you'll use to track and report your income.

Two types of bookkeeping methods are single-entry and double-entry.

• When using the single-entry bookkeeping method, all incoming and outgoing financial transactions are entered only once in your records.
• Under the double-entry bookkeeping system, every transaction is entered twice (once as a debit and once as a credit).

It is recommended to use the double-entry bookkeeping approach because it decreases the risk of errors and increases the chance of your books balancing.

There are two standard methods of accounting: cash basis and accrual basis.

• Cash accounting involves recording money coming in and going out as it is received and paid.
• Accrual accounting records revenue and expenses as they happen or are expected to happen, regardless of whether the actual payment is received or not.

Most property managers prefer the cash-basis accounting method since money is recorded into the books as soon as the transaction is completed. You can even use accounting software to keep track of all of your income and expenses as they happen.

 2. Set up a Charts of Accounts

A Chart of Accounts lists all the different types of accounts that your company uses, such as assets, liabilities, income, and expense accounts. Creating a Chart of Accounts for your property management company will help you minimise rework and keep track of your financial performance. Thus, it is a critical step in effectively managing your company.

A detailed and comprehensive chart of accounts will provide you with more insight into how money moves into and out of your company. You can create a Chart of Accounts with either a basic Excel spreadsheet or property management software.

Professional software will automatically generate a chart of accounts based on your needs and requirements. It will allow you to customise your chart of accounts and assist you in staying organised by labelling your financial transactions.

3. Filing taxes for a property management company

When it comes to filing your taxes, you have three options, each of which is dependent on the circumstances of how you rent out your home.

• Tax return for a shared residence:-

If you rent out a portion of your property, you must divide your spending between the part you use for rental and the part you use for personal reasons.

Some expenses (like painting the room you are renting out) can be deductible as business expenses, while other costs (such as power bills) that apply to your personal and rental property must be split.

• Tax returns for a separate residence:-

If you rent out a home separate from your own, your tax filing method will be determined by the services you provide to your tenants. There are two types of services- basic and significant services.

Maintenance, utilities, trash pickup, and common area cleaning are all basic services. On the other hand, significant services include cleaning the private rental apartment, changing sheets, and providing meals.

• Tax return for a short-term rental:-

If you rent out your personal property for a portion of the year, your expenses are divided according to the amount of time it was rented out. But if you rent out your property for less than 15 days during the year, there are certain exceptions to this method.

If you have numerous rental properties, you'll need to declare the revenue and costs for each one separately on your tax return. Maintaining correct, up-to-date books helps you to review all of your finances at once and look for ways to save money through tax deduction claims.

As a result, it's critical to stay updated about the tax code changes that may affect what you can and should deduct. To make the most of the tax deduction claims, you can also consult a professional tax advisor.

Things to keep in mind while doing property management accounting:-

• Separating your personal and business money by opening a business checking account makes it easier to compile a monthly reconciliation report that includes all of your business transactions' data and justifications.

You can also consider opening multiple business accounts for multiple rental properties so that you can easily track and manage payments for all of them.

• Property management accounting software automates many tasks while also allowing you to keep track of your earnings and expenses.

Automation of accounting work can free up your time that you can use to focus on the other valuable and profitable activities in your business.

• A monthly reconciliation helps you to find any errors in your records and prevent any fraud. It can be a time-consuming process, but with the right the accounting software, you can do regular reconciliation easily.
• Creating financial statements regularly allows you to examine how your company is doing. Financial reports are also important for long-term planning and make filing taxes much easier.

There are three important financial statements you should prepare. These include your company's income statement, cash flow statement, and balance sheet. You can outsource the preparations of your financial statements to a qualified property accountant to ensure their accuracy and save your time and money.