Property Management Accounting Basics: Reconciliation and Redundancy
Humans are hard-wired to seek maximum reward with minimal effort. We are driven to find ways to get things better and faster while doing less work. We are also sometimes simply forgetful of details when we are focused on completing tasks.
In accounting, however, you cannot spare any details. Reconciliation is the process of making sure your bank account statements match the ledger for your business, dollar for dollar, penny for penny. If it’s off, then you’ve gone wrong somewhere.
First, you want to create the habit of reconciling weekly if not daily, and at the very least monthly (depending on the size of your business). It’s a lot easier to track down a discrepancy, transposed number in a transfer or a missing deposit someone forgot to enter – among a litany of other things that can go wrong – if it happened within the last thirty days and not sometime in the last half a year.
To combat the inherent nature of people to play fast and loose with the details, it’s also important to incorporate redundancy in your accounting. In the creation of your Chart of Accounts, you’ll need to properly set up accounts and sub-accounts that best reflect the nature of these transactions. You will also need to create Journal entries for any transfers made between accounts. Think of your Journal as a “dear diary: I moved this money from bank Account A to bank Account B because of reason X”. You can cross-reference the Journal entry as a memo line when you make the “real” transfer in your bank account.
Multiple layers of reporting will make your life easier and your accounts simpler to manage. Depending on your state, your property management business may also be subject to audit. While audits aren’t fun, they’re even less fun if your reports aren’t in order. The Trust reconciliation report is a collection of reports that are commonly required to pass audits conducted by state property management licensing boards.
The report combines Bank Reconciliation and Bank Account Balance Breakdown. Reconciling on a regular basis makes this monthly reporting a breeze! In property management, there are plenty of factors that are out of your control, but proper accounting isn’t one of them. Be diligent, detailed, and redundant, and you will be able to make the best financial decisions to further your business.
Are you too busy to reconcile appropriately?
Of course, if this is overwhelming (and it very well may be) – don’t worry! If you’re too busy making deals to handle details, let a property management company like Frontline Property Management handle them for you! Our accounting department is focused on keeping your reporting pristine and your monthly reports rolling!