Setting up a Chart of Accounts for Commercial Real Estate

It categorizes every penny coming in (income) and going out (expenses), ensuring a clear picture of your investment’s health. For example, if you’re a property manager, investor, or landlord, you can download our free property management chart of accounts template. For commercial properties, CAM expense tracking demands particular detail and precision. These expenses must be carefully documented to support tenant reimbursement calculations and withstand tenant audits. Create parallel structures between CAM expenses and the corresponding reimbursement revenue accounts, and distinguish between recoverable and non-recoverable expenses for accurate tenant billing. This dual requirement creates challenges that standard approaches to managing accounting often struggle to address effectively.

Core Revenue Account Structure

• Overall, this means security for your business and future investments.
• Most people use the address of their property when they create the subaccounts for each Fixed Asset account.
• In property management accounting, understanding the relationship between assets, liabilities, and equity is key to assessing a property management company’s position.
• Other times, investors will take advantage of a 0% or low interest rate promotion to make property purchases, then pay off the balance due when the credit card interest rate rises.
• Buildium comes with a standard chart of accounts for rental properties along with the option to edit an existing general ledger account.
• Set up sub-accounts under each main category to track detailed transactions.
• Regular review and refinement of your chart structure ensures it continues to meet changing business needs.

This takes diligent financial analysis, decisive action, and constant monitoring of market conditions and property performance. Accrual accounting gives a more accurate picture of financial performance over time. It is the required method under GAAP standards, so most property management companies use accrual accounting.

Chart of Accounts for Rental Property: A Comprehensive Guide

Expenses refer to the costs incurred by a property management company in the course of operating and maintaining https://www.bookstime.com/ properties. These can include maintenance and repair costs, utilities, property taxes, insurance, and administrative expenses. For example, if a property management company buys a piece of equipment for $10,000 with a 10-year useful life, it would depreciate the equipment by $1,000 per year. This allocation means the asset’s cost is matched to the period it’s being used, ensuring accurate financial reporting.

How to Set Up a Chart of Accounts for Your Rental Property Business?

It lays out approved methods for measuring, recording, and reporting accounting data. Adhering to these regulations ensures that property operations remain lawful and that financial practices are transparent and accountable. Proper categorization facilitates better financial tracking and reporting. At Springbord, we are experts at implementing customized accounting programs for property managers. Use classes, tags, or sub-accounts (depending on your software) to break down financials by property or unit.

If you have multiple properties, you may want to consider opening a separate account for each. Depreciation expenses are recorded annually for buildings and improvements. By optimizing rental income and minimizing expenses, property managers can maximize NOI and returns for their clients.

• For property management, a well-structured COA is critical because it enables property managers to track the financial health of each property.
• Escrow accounting violations can result in serious compliance issues and potential legal exposure.
• By breaking your fixed assets out in this way, it will help your accountant when they record your taxes.
• The goal is to  ensure that each area has the necessary funds to cover expenses and operate efficiently.
• Tickmark, Inc. and its affiliates do not provide legal, tax or accounting advice.

Focus on the level of detail actually needed for decision-making and compliance rather than theoretical perfection. Mixing operating and escrow funds, even inadvertently, creates serious compliance risk that can result property management accounting in regulatory violations and legal exposure. Of course, you will have to add new line items for new transactions, but each new item should be sorted into existing categories that follow the coding system you set up. David Bitton brings over two decades of experience as a real estate investor and co-founder at DoorLoop. A former Forbes Technology Council member, legal CLE & TEDx speaker, he’s a best-selling author and thought leader with mentions in Fortune, Insider, Forbes, HubSpot, and Nasdaq. A devoted family man, he enjoys life in South Florida with his wife and three children.

Property Management Trust Accounting Procedures

• This makes it easier to track income, manage expenses, and prepare for tax season.
• Accurately tracking all income and expenses on an ongoing basis is crucial.
• Instead of worrying about integrating your accounting software with your spreadsheets and your property management software, find a software that does it all in one place—and securely.
• Tracking accounts receivable efficiently is key to maintaining a healthy cash flow and ensuring all income is collected on time.
• Set up core accounts for assets, debts, equity, income, and expenses.

Backups and secure data storage will keep your financials safe and give you peace of mind. When you have shared resources across multiple properties, use clear allocation methods based on square footage or actual usage. Standardized procedures ensure consistency and accuracy when tenants pay part of the rent or pay for multiple months at once. For late payments, automated fee calculation and systematic follow-up procedures keep the cash flow flowing and create a clear audit trail. Industry data shows that 80% of property managers collect rent directly, so understanding common challenges and solutions is key to running efficiently.

• This is because there are unique accounts and records that must be kept for both the properties and the tenants.
• Select the account that needs to be edited and make it a sub-account under the parent account, as shown in the example below.
• Forecasting budgets is like predicting the weather for your company—tricky but essential.
• Choose the appropriate account types like Income, Expense, or Bank for each category.
• Before importing the IIF file (Scroll to the bottom of the blog to download a free copy of the IIF File), clean out all the accounts you do not need.
• Track deductible expenses (like repairs and marketing) to save on taxes.

Create expense accounts for mortgage interest, property taxes, insurance, utilities, and maintenance costs. Record rental income using specific income accounts for each property to track Accounting Errors revenue separately. Create dedicated expense accounts for common costs like repairs, insurance, and property management fees.

How to Build an Effective Property Management Chart of Accounts

Learn how to streamline your property management, repeat the process, and grow your portfolio. Learn how to start your rental off with a bang, including marketing the property, finding tenants, renting, & more. Accurate tracking of expenses is crucial for tax reporting purposes, particularly when it comes to deductible expenses.

Here are the four reports that will make the biggest impact on your business. The general ledger consolidates all the transactions recorded in the general journal. It organizes these transactions by account, allowing your team to see the cumulative effect of all transactions on each account. Use Classes in QuickBooks to separate different properties and units. Proper expense management means maximum profitability and accurate owner reporting. Download your free sample commercial real estate-focused Chart of Accounts.