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A Simplified Guide to Property Management Accounting Services

Accounting | By John Miller | 2024-10-26 07:06:40

A Simplified Guide to Property Management Accounting

Property management accounting services are the backbone of financial transparency and success in real estate management. Whether managing a single rental unit or an entire portfolio of properties, accurate accounting services helps you keep track of income of the businesses, various business expenses, and overall financial performance. It not only ensures profitability but also aids in compliance with tax laws and prepares you for financial reporting. This guide simplifies property management accounting, offering clear steps to manage the finances of rental properties effectively.

How to Manage Property Accounting? 

As an expert we always suggest businesses to either hire an accountant or get outsourced accounting services, because it is really critical to manage the accounts property. Some of the ways through which you can manage the property accounting services properly are given below 

To Open a Separate Business Account

One is required to make a separate account for the business no matter its size. This requires the creation of a separate account, one being personal and the other for the business finances. Thus the income earned by the business will go directly into the business account through which the finances of the business can be managed accordingly. The opening of a separate bank account will also provide for the assurance of the various forms of transactions that took place inside the business showing the profits and loss statements.

Choose for the Proper Outsourced Accounting Services

There are two types of methods in which one can calculate the expenses and hence keep proper track of the financial health of the business, it can be further divided into two types cash basis and accrual:

Accrual

One can enter the business and expenses from the income as there is no requirement for the business to transfer the money to the bank account. This can be done towards the part of rent, let's say a summer cottage under which a tenant pays a rent of $8,000 for four months. Under this method, one can easily keep track of $8,000 in the bank account despite entering $2,000 in the books.

Cash Basis

The transactions are entered in the books as soon as capital changes. Using the same example as above under which the rent was paid for $8,000 in advance one can enter the same amount under the business income. These accounting services will further be chosen for the tracking and reporting of income. Thus this method stands beneficial towards the small form of business.

Set Up of Chart of Accounts

The aspect of the chart of accounts stands with the transactions that are made on the rentals towards the reference made for the chart of accounts. These forms charts are further made towards the accounts and any ledger as it provides for the insights through which one can have more info of the accounts. This also leads to providing more of the info made towards the expenses for the business but sometimes tends to be more complex. Thus the spreadsheet can be made from the chart of accounts. The below provides an example of the applicable chart of accounts for the listing of Express DHL:

Account

Type

Types of transactions

Utilities

Expense

Heat, water, electricity

Repairs

Expense

Repair supplies, repair services

Grounds maintenance

Expense

Flower beds and lawn care

Rent

Income 

Guest fees, after 3% service charge

Suite supplies

Expense

Toiletries, basic kitchen stuff, etc.

Cleaning

Expense

Cleaning supplies costs

To Setup Journal

The most crucial part of a journal is to set up various accounts. Thus one can keep track of the transactions that are made through business. Even one can organize the journal through various months. Thus through bookkeeping in Excel, it can be managed more appropriately. This also further requires creation of a separate account for the setting up of the journal every month.

Even multiple properties tend to bring money which can be calculated through a double-entry bookkeeping system. This further requires more maintenance but stands very much comfortable in the process of organizing the various forms of transactions and other forms of ledgers. Let's take the example of Express DHL for July:

Date

Ledger

Amount

Notes

01/07/24

Rent

$300

Guest July 1 - 6

07/07/24

Suite Supplies

$10

Soap and candles

09/07/24

Rent

$150

Guest July 9 - 12

14/07/24

Grounds maintenance

$40

Mulching

21/07/24

Utilities

$45

Gas bill

21/07/24

Rent

$250

Guest July 21 - 26

Generation of Proper Financial Statements 

The generation of the financial statement requires taking the information from the journal through which one can make efficient management of journal entries for the creation of reports. This is very much essential to keep track of business performance as a long-term strategy by which one can file taxes in a much easier manner. Thus this includes the three types of financial statements:

  • The balance sheet through which one can keep track of the expenses including assets and liabilities towards which one can make the money work.
  • The income statement further tells one how to make money for their period of reporting and the possible spending.
  • The cash flow statements are made to keep track of the money that is spent on the different areas of business and savings.

The effective management of the property in the business stands out to be very vital through which one can make their form of business which can be much handled by the accounting software like Xero Accounting or Quickbooks Accounting. One can also generate the financial Excel statement and use the applicable templates.

Track the Deductible Expenses of the Business 

One can keep track of the deductible expenses towards the business owners which can further make deductions towards the rented property that include as follows:

  • The supplies for the maintenance and cleaning
  • The cost of the repairs
  • Traveling expenses from home
  • Preparation of taxes and other professional accounting
  • Cancellation of the lease and other cost
  • Fees related to legal expenses 
  • Fees with respect to management 
  • Taxes which are related to real estate 
  • Mortgage interest and Advertising

Filing Taxes for the Management of Property of the Company

The filing of the taxes comes with various applicable ways through which one can make out the preparation of the rental income. Multiple properties include the income and the expenses which are to be listed separately towards the income tax form.

Filing of Taxes for Separate Residence

One can rent out the residence through various ways of separation under their own, this also includes the filing of taxes that further depends on the kind of services which is offered towards the tenants that also includes basic services and other forms of substantial services.

  • All the forms of basic services are included under this formation starting from the utilities, maintenance, removal of trash and to clean various common areas. One can use Schedule E, Form 1040 towards an apartment and is also required to include Form 4562 which stands for the depreciating property and includes the expenses of the vehicle.
  • The substantial services under this category start with cleaning the rental unit, changing the linens and also providing for the meals. The income is to be reported under Schedule C and Form 1040 for the apartment only.

Filing of Taxes for Shared Residence

The rent part of the income is needed to divide the expenses which are used for rental purposes and also the part for personal purposes. These forms of expenses also include the personal and rental part which can be deducted as a part of the expenses. Let’s say one paint the room to further rent it out which can be deducted towards the expenses. This stands for the improvement through which one can increase the accurate value of the overall income of the home.

The other form of expenses also includes the personal and rented income which is further required to be divided. Let’s say one can share the electric bill in between two separate rooms, which can be separated in two reasonable methods. One can get more information from IRS Publication 527 as the income from property comes from Schedule E and Form 1040.

Conclusion

Mastering property management accounting is key to ensuring the financial health as well as success of rental properties. That is where Fino Partners helps you out. If you are worrying about managing your property finances then we can solve this problem of yours. You simply need to get our virtual accounting services. By organizing finances, tracking income and expenses, and maintaining accurate records, property managers can make informed decisions, maximize profits, and avoid financial pitfalls. We solve every issue related to your business. Consistent accounting services also ensure compliance with tax regulations, simplify financial reporting, and provide a clear view of a property's performance.

Read Also Outsourced Accounting Services for E-commerce Businesses

Frequently Asked Questions (FAQs)

Property management accounting services involve tracking and managing the financial transactions related to rental properties.

You should use a chart of accounts to categorize income and expenses. Keep business and personal finances separate, and track all transactions to ensure accurate financial reporting.

Common expenses include property repairs, maintenance, property taxes, insurance, mortgage interest, utilities, property management fees, and marketing costs.

While you can use general accounting software like Xero Accounting or Quickbooks Accounting, specialized property management accounting software can streamline processes like rent collection, expense tracking, and financial reporting.

Security deposits are considered a liability until they are returned to the tenant or applied to damages. They should be kept in a separate account and not mixed with operational funds.
Aishwarya-Agrawal

John Miller

With extensive experience in accounting and finance, John Miller brings clarity and expertise to complex financial topics. His in-depth knowledge of bookkeeping, year-end accounting, and tax preparation empowers business owners to make informed decisions. John’s writing simplifies the essentials of accounting, making it accessible and valuable for small businesses and entrepreneurs.

Why Choose The Fino Partners?

With Fino partners you get more than just accounting and bookkeeping in the USA. You get an accurate, clear process that makes you satisfied. We made money management easy so you can grow your business instead. The advantages of utilising Fino partners for accounting outsourcing USA are:

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