Property Management Accounting: Setup, Reports, and Software

Managing your property finances can get complicated quickly. Your portfolio might have grown beyond a few units, creating confusion. Security deposits may need careful handling, and you need to meet GAAP compliance requirements.

Property management accounting provides you with a structured approach to achieving operational efficiency and compliance across multiple properties.

This guide explores the essentials of accounting in the property sector, outlines the steps to set up an accounting system, and explains how CDH supports accounting.

TL;DR – Property Management Accounting Basics

Here is a quick rundown of the foundation of property management accounting:

1. Building a strong accounting system saves you hours of routine tasks.
2. A trust account should be set up for all payments you receive from residents. Besides, it’s crucial to handle the security deposits carefully to maintain compliance.

What Is Property Management Accounting?

It is the process of recording, classifying, summarizing, and reporting all financial transactions related to your rental properties.

Here are the key benefits of proper accounting processes to property managers:

• Increase Rental Income: When you closely monitor receivables and revenue growth, you can implement strategies to maximize your rental income.
• Improved Cash Flow: With detailed accounting records, you can implement more effective capital planning and ensure sufficient cash for expenses, maintenance, and distributions to owners.
• Compliance with Regulations: Accurate financial records are crucial to help you comply with accounting rules and tax regulations.

How to Set Up Your Property Management Accounting System

When starting up an accounting system, there are several things you should put in place to ensure a smooth running of your accounting.

Here are the 4 steps to take:

1. Separate Your Bank Account

Using your personal account for property income can get muddled during reconciliation. You need to open a new bank account and process all transactions that relate to the property.

With the dedicated account, you can track the payments made and received and reconcile your ledgers at intervals.

Besides, integrate your property accounting system with your bank account to get an accurate picture of your cash flow and balances.

2. Consider Your Accounting Method

There are two approaches to property accounting: cash basis or accrual accounting.

• If you’re an individual managing your own property, you can choose cash accounting. In this method, you record each transaction in your ledger as it happens, whether it’s a payment or a receivable.
• For larger organizations with a team of staff members, you should choose accrual accounting. In accrual accounting, transactions are recorded when they occur, not necessarily when money is sent or received.

3. Set Up a Chart of Accounts

You should have a list of crucial categories and subcategories to track every transaction related to your property. It separates the property-level income and expenses from your company operations.

Depending on your complexity, these are some common types of accounts:

• The income account includes rent, late fees, and application fees.
• The expense category covers repairs, management fees, and utilities.
• The liability account has tenant security deposit, rent due, accounts payable, and trust account liabilities.
• The equity category can include owner’s capital, owner’s draw, and retained earnings.

4. Create a Consistent Process for Recording Transactions

Set a set of preset rules that an accounting platform can use to keep your financial records current.

For instance, you shouldn’t wait until the end of the month to catch up on bookkeeping. The platform can automatically reconcile the deposits liability in your books to the deposit bank account balance weekly.

It can also record payments, deposit funds into your account, and provide real-time status updates.

Essential Financial Reports for Property Managers and Property Owners

The financial reports paint a picture of your portfolio’s performance.

Here are some of the important ones:

• Property Income Statement: It shows a breakdown of all income sources, such as rent, late fees, and utility reimbursements. It also shows the total expenses, including maintenance, insurance, property taxes, and management fees.
• Cash Flow Statement: It tracks actual money that moves in and out of your property.
• Balance Sheet: It shows assets vs. liabilities, which you can use to identify negative cash balances and unreconciled accounts.
• Rent Roll Report: It predicts revenue based on your property’s historical data. It includes the lease dates, recurring charges, and the estimated market rental value. You can use it to see how you’re pacing against your financial goals.
• Owner Distribution Summary: It details the total rent collected and subtracts property expenses and management fees to arrive at your payment.
• Budget vs Actual Report: It helps identify the gap between your projections and reality, enabling you to adjust your budgets and plan for potential unexpected costs or cash flow issues.

What to Look for in Property Management Accounting Software

There are many software options available to address the pain points of property management accounting.

Here are the features you should look for:

Property Management Accounting Best Practices

When you embrace sound accounting practices, you can optimize your financial performance, reduce risks, and operate your business more efficiently.

Here are the key tips to follow:

• Track Your Tax-Deductible Expenses: List all your tax-deductible expenses to make your end-of-year tax prep smoother.
• Document Everything: Keep a clear record of all the statements for every deposit, withdrawal, and transfer.
• Create a Monthly Checklist: Organize accounting tasks into weekly priorities, including reconciliations, owner report generation, vendor management, and preparation for next month’s recurring changes.
• Standardize the Chart of Accounts: Ensure that every property uses the same categories consistently.
• Handle Security Deposits Carefully: Dedicate a separate account to hold tenants’ money that must be returned at move-out. Besides, keep detailed records of the interest on deposits in accordance with your state’s specific requirements.

How CDH Supports Property Management Companies

At CDH, we’ve spent over 30 years integrating full-service advisory and technology expertise to provide seamless accounting to property management companies. We have access to the Moore Global network across 100+ countries, enabling us to support your portfolio wherever it grows.

Here is what our support looks like, tailored to your needs:

• Fractional CFO Services: You get access to a CFO and senior-level advisory support without the full-time cost. We can handle your financial strategy, investor reporting, and strategic advice on your portfolio.
• Outsourced Accounting: You get accounting and bookkeeping services to help you maintain accurate financial records, generate timely financial statements, reconcile your bank accounts, and ensure GAAP compliance each month.
• Assurance Services: We conduct financial audits and provide risk advisory support to add another layer of confidence around your financial reporting.
• Technology Solutions: We implement business accounting software such as Sage Intacct to improve your financial reporting, reduce data entry errors, and support your scalable business.

Reach out to start a conversation.

Frequently Asked Questions (FAQs)

These are the questions property managers and owners often ask about accounting:

What Is the Difference Between a Property Manager and a Property Accountant?

A property manager helps manage your real estate asset, including routine property maintenance, oversight, and lease agreements.

A property accountant, on the other hand, helps manage your financial records and ensures compliance with tax and regulatory requirements for the property.

How Often Should Property Management Accounts Be Reconciled?

You should reconcile your operating accounts weekly and your trust accounts at least monthly to catch errors when they are easy to fix.

Accounting software can help review bank deposits based on your transaction volume.

Do Property Management Companies Pay Tax on Owner Funds?

No, the property owner is legally responsible for reporting and paying income taxes on the rental earnings.

How Long Should Property Management Financial Records Be Kept?

You should keep property management financial records for at least 7 years to avoid potential income disputes or IRS audits.

These documents include tax returns, bank statements, and invoices.

Is Property Management Accounting Different From Standard Business Accounting?

Property management accounting includes owner distributions, security deposits, property-level financial tracking, and operational workflows unique to rental management.

Conclusion

Property management accounting lets you confidently scale your portfolio. Paired with an accounting system, you get accurate and timely financial information that you need to inform your decision-making.

It is, however, crucial to consider expert accounting support tailored to your accounting challenges.

As a partner-owned CPA and advisory firm with resources across 100-plus countries through the Moore Global network, CDH works with property managers and owners.

Our focus goes beyond accounting and bookkeeping. We work directly with you to provide financial advisory support, outsourced accounting and bookkeeping, alongside Sage Intacct implementation to help you manage your multiple properties.

Speak with a CDH advisor today, and we can help you map the right scope to your business.