Property Management Accounting: Creating Your Chart of Accounts
Once you have decided which method of accounting you’re going to use,your next step is to set up your Chart of Accounts. At its simplest, your Chart of Accounts is a list (chart) of the different financial categories (accounts) you use for your property. This can take the form of anything from a written document or an excel spreadsheet to property management accounting software – which we highly recommend!
Your Chart of Accounts is a way to keep track of where your money is going and why. It is the foundation of your financial record keeping and lists every account that your transactions can be sorted into and whether that account is an expense (money going out) or an income (money coming in). The more accounts you have, the more complex your Chart of Accounts will be, but the more insight you will have into your cash flow.
For example, in a simple Chart of Accounts you can have an account that is “Utilities” that is labeled an “expense”. You could also then break down Utilities into sub-accounts: Water, Electricity, Trash, et al. Therefore, you can see every expense for exactly what it is when it leaves your bank account. Every account has a ledger, or a record of the transactions. The General Ledger maintains the balances of an account (such as “Utilities” from the previous example) and sub-account Ledgers, should you choose to use them, are line-item transactions within that account (specific Utility bills invoiced and paid). Your Chart of Accounts is the organizational tool for your ledger, and is not the ledger itself.
A more detailed Chart of Accounts also manages assets, equity, and liabilities and employs block numbering to do so. Block numbering allows you to organize your accounts by type with the sub-accounts that allows for line-item accounting. Block numbering also makes room to easily add in accounts as you grow your portfolio. This way, you can see how your properties are doing individually and how your business is doing on the whole.
Think of your Chart of Accounts as the easiest way to communicate your business with your accountant or banker, and the best guide to making financial decisions for your future! This is an example of how a detailed Chart of Accounts logs its financial transactions.
Are you too busy to manage a complex Chart of Accounts?
Let Frontline Property Management, Inc handle it for you! We give you the detailed reporting you need to stay on top of your passive income by crunching all of the numbers ourselves. Consider us your property management accounting team!
Find out more about how we can help you manage and grow your property portfolio!