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Part 1: The Basics of Property Management Accounting
In this series, we are going to cover the basics of property management accounting. Property management accounting is different from standard accounting because you not only need to keep track of your property management company’s finances, you are also managing separate accounts for the properties you manage.
Let’s start at the beginning, by covering some of the more commonly used accounting terms to familiarize you with accounting terminology.
Commonly Used Accounting Terms
Accrual Accounting
Accrual accounting is the method of recording transactions when they are due rather than when the actual transaction takes place. For example, your contractor from a turn did work for you in June, so you record that bill as paid in June, and not July after the invoice arrived.
Bookkeeping For Property Management
The term bookkeeping and calling accounting records books comes from pre-computer days when all accounting records were kept in actual books. Very few people still use physical books with columns of records or even a physical check register now that there is state-of-the-art accounting software that makes everything easier.
Cash Accounting
Cash accounting is the process of recording transactions when they take place. You will need to choose whether you are going to use a cash accounting method or an accrual accounting method.
Chart of Accounts
Your chart of accounts is the different categories that you record your transactions under such as assets, liabilities, income, expenses, and equity.
Debits and Credits
Debits and credits are easily the most confusing part of accounting for most people. Debits increase asset or expense accounts and decrease liability and equity. The opposite is true for credits. Credits decrease asset and expense accounts and increase liability and equity accounts. For a detailed explanation, visit this informational page from accountingtools.com.
Double Entry Bookkeeping for Property Management
This popular accounting method uses two accounts for every transaction, one account is debited, and one account is credited, an example of this is a tenant deposit. The tenant’s account is debited, and the account for security deposits is credited.
General Journal
The general journal is a chronological list of every transaction in your books. The transactions are called general journal entries. These entries are not divided out by accounts.
General Ledger
The general ledger is like the general journal, except the information in the general ledger or GL shows transactions broken down by accounts (the same accounts you list in your chart of accounts).
Want more? You can read part two explaining the Basics of Property Management Accounts.
Are you ready to start your own property management business, but you need more training before you feel confident? Our full course, “How to Start, Run, and Grow a Property Management Business” will teach you everything you need to know to start your own thriving property management company. This online go-your-own-pace course is accessible for life, meaning you will always have the tools and resources you need when you need them.
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