Tips for Easy and Seamless Rental Property Accounting Process

Properly handling your rental income and expenses, including precise accounting and tracking of finances, is an important aspect of rental management. The following are some of the best rental property accounting guidelines to help you stay organized and keep your financial records and reports in order.

1. Understand the Transaction Types Related to Your Rentals

There are various sorts of income and spending transactions, and each might be associated with a renter, a property, or your business. Understanding how each transaction links to different aspects of your firm will aid in the correct maintenance of your accounting records.

Tenant revenue can include rent payments, late fees, deposits, and parking fees. Renter expenses may include a property expense incurred by the renter that they must reimburse, such as a broken window or clogged toilet. Property income can include the reserve money, application fees, tenant rent, and other fees collected. Property expenses may include maintenance or vendor costs, utility payments, property management fees, and so on.

Tenant late fees, management fees, and so on can all be considered business income.
Business expenses may include charges for property management software, legal fees, office space rental fees, advertising, and so on. You may note that some charges can be classified in several ways and appear on multiple ledgers, such as a rent payment, which can be both tenant and property income.

2. Separate Personal and Business Accounts

Even if you only own one rental property in the US, you should set up a separate bank and savings account for your rental business. This is the most convenient approach to keep your money separate from your personal accounts until you're ready to pay yourself. It's also the most efficient approach to stay organized and streamline your reconciliation activities.

Some landlords may even choose to set up separate accounts for each property. This is recommended for multifamily properties, where you must manage various payments and expenses for each unit, but it may not be required for each single-family rental home you own.

If you are a property manager, you should maintain a separate bank account for your business and understand how to manage trust accounts. Commingling funds is prohibited, and you must maintain your owners' assets distinct from your own.

3. Create a Consistent System for Recording Transactions

Create a process or system for posting rental transactions on a consistent basis, including when, why, and how. You should comprehend who is involved in the transaction. You should also have a method for routinely logging your transactions.

4. Have a Reconciliation Plan

Equally vital to routinely recording transactions is reconciling your accounts to ensure that money is properly accounted for.

Reconciliation simply means agreement; that is, do your bookkeeping ledgers correspond to what transpired in real life, as represented by your bank statement. Again, the approach (whether paper and pencil or a reconciliation tool) is only as useful as the accuracy of the data entered.

Your reconciliation strategy should entail setting aside uninterrupted time for the procedure. The more sophisticated your property portfolio and management business, the more time it will require. Reconciling is a monthly task, however it is encouraged to include a weekly ban-to-ledger comparison.

If your software has a bank synchronization tool, you can use it to make the comparison. It saves time by ensuring that transactions match in both locations before proceeding with a proper reconciliation. A bank sync verifies and compares bank transactions with those in the programme, allowing you to update missing details and identify faults and omissions. The software then stamps transactions as 'cleared', indicating that the financial institution has completed the transaction.

Once the date-entry is performed and validated on a weekly basis, your monthly reconciliation should be straightforward. Most programmes will display expenses on one side and income on the other, with checkboxes next to each transaction. Your objective is to tick the box next to each item that appears on the bank statement. When these are checked, the total income received, total expenses spent, and ending balance should exactly match the totals on your bank account.

Finally, your reconciliation strategy should include retaining that data for state reporting compliance, to keep on hand for your accountant or in the event of an audit, and for any other future reference.

5. Prepare for Tax Season

Keeping track of your rental accounting throughout the year is the most effective approach to make tax season as simple as possible. You'll be able to access all of the information you need to submit your taxes, send 1099-MISC forms to vendors, and provide owners with crucial tax reports.

Property management software can also be useful during tax season because many of them include tax tools and online filing choices.

6. Refer to a Professional

Don't be hesitant to ask for assistance when you need it. Whether you want to work with a reputable CPA or seek guidance from a property management mentor, getting a second view is usually a good idea.

In some circumstances, you may need to hire an accountant or a legal counsel to assist you; in either case, they will be grateful that you followed the guidelines above to create an easy-to-follow accounting trail.