Property Management Accounting Book
Property Management Accounting Book
Property Management Accounting Book
buildium
Marc Levetin and Michael Monteiro
buildium
Copyright 2009 by Buildium LLC. All rights reserved. No part of this material may be used or reproduced in any
#1 in online property
management
manner whatsoever
without written permission except in the case of brief quotations embodied in critical articles
and reviews. For reproduction permission, email sales@buildium.com.
Buildium green
ISBN:1-4392-4161-9
Barmeno Regular
#4b9200
R: 75; G: 146; B: 0
Buildium grey
#777777
R: 119; G: 119; B: 119
This publication is designed to provide accurate and authoritative information in regard to the subject matter
covered. It is offered with the understanding that the publisher is not engaged in rendering legal, accounting,
or other professional services. If legal advice or other expert assistance is required, the services of a competent
professional person should be sought.
About Buildium
Buildium is an innovative property management software company that provides simple and affordable online
solutions to landlords, professional property management companies, and self-managed condos and homeowners
associations alike. Founded in 2003, today Buildiums online property management software is used by thousands
of people managing more than 250,000 commercial and residential units worldwide.
CONTENTS
Introduction
The Books
Double-Entry Bookkeeping
Chart of Accounts
General Journal
General Ledger
Relating the General Journal and the General Ledger
Debit and Credit Accounts
Accrual vs. Cash Accounting
Financial Statements
The Accounting Cycle
9
10
10
11
12
13
13
15
18
23
24
26
26
29
32
34
38
40
43
48
50
Setting Up Company
Collecting Property Reserves
Giving Rent Concessions
Collecting Prepaid Rent
Paying Management Fees
Paying Rental Owners
Collecting Late Fees
Refunding an Overpayment
Applying Prepaid Rent
51
53
56
58
60
62
64
68
70
Appendix
73
Introduction
PROPE RT Y
MANAG E M E NT
ACCOU NTING
101
IN THIS DAY and age, were lucky to have software that takes care of the nuts and
bolts of property management accounting. But even with software, youll find it much
easier to keep accurate records if you have an understanding of the basic accounting
concepts upon which these programs are based. Buildiums Property Management
Accounting is designed to teach you these concepts with property management
specifically in mind.
Even the most complex property management accounting procedures can be
broken down into a simple set of steps. Over the course of the coming pages well go
over a variety of real world situations step-by-step, arming you with the information
necessary to understand what your accounting software is doing behind the scenes.
This guide will also help you understand how to read the three main financial statements (income statement, cash flow statement, and balance sheet) and provide some
tips for keeping accurate financial records for the properties you manage.
One more thing you dont need an accounting degree or previous bookkeeping
experience to keep accurate financial records. This guide will arm you with all the
information you need. And if you do have an accounting background, youll find some
great refresher information in the following pages.
Chapter 1
ACCOU NTING
CONCE PTS AN D
TE R M INOLOGY
BEFORE LOOKING AT specific scenarios, lets start with some basics. Please note
that this section is not meant to be a comprehensive guide, but rather a general
overview of accounting procedures.
The Books
Before the days of accounting software, bookkeepers handwrote their companys
financial transactions in enormous tomes (thus the very literal term, bookkeeper).
As you can imagine, a bookkeepers shelves were lined with large volumes, filled with
column after column of handwritten records. From this paper-filled past, we get the
term the books. Remember, each property you own is essentially its own company and
will require the same bookkeeping measures as any other company.
As a property manager, its your job to manage the books for your rental owners
and homeowners associationseven if youre working with software rather than real
books. Each property, condominium, and association has its own set of books. When
recording any financial transaction, its important
that you consider where it should be recorded.
Always remember that a single transaction between
Each property,
two parties is actually recorded in two different
condominium
sets of books; this can be especially confusing when
and homeowners
the two parties are you and the rental owner. For
association has its
example, when you collect management fees, the
own set of books.
fees are recorded as an expense on the owners
books and as income on your books.
Double-Entry Bookkeeping
Double-entry bookkeeping is at the very center of modern accounting.The primary
rules of this system are simple:
1. For every transaction listed in the general journal (see page 11),
there must be at least one debit and one credit.
2. The sum of all debits must equal the sum of all credits.
Dont worry if some of these concepts dont make sense right away they will
become clear as we move further into this guide. We promise!
Chart of Accounts
At its simplest, an account is a category. Formally, an account is a summary of all
debits and credits of a certain type for a company or property. A chart of accounts is
a list of all accounts a landlord or property manager uses to categorize his transactions. The five major types of accounts are:
1. Assets: things a property owns
2. Liabilities: amounts a property owes
3. E
quity: amounts that belong to the propertys owners after subtracting whats owed
4. Income: amounts a property earns
5. Expenses: amounts a property spends
Flip to page 14 to see real examples of these accounts.
There are a couple of important things to keep in mind. First, while there are
only five different types of accounts, you can have as many actual accounts as you
want. Its entirely up to you and really just depends on your needs. For example, you
can have a single account for tracking all utility expenses or you can have separate
accounts for electricity, natural gas, water, and sewer.
Second, if youre working with a bookkeeper or an accounting firm, dont be shy
about asking for advice. While theres no right way to set up your chart of accounts,
there are a standard set of accounts most property managers will want to include
accounts for tracking things like rental income and management fees, for example.
10
General Journal
The general journal (or book of original entry) is a chronological list of each and
every financial transaction that occurs during the course of business. These transactions are called general journal entries. When you
record a journal entry, you must have at least one
Each transaction in
debit and one credit and your debits and credits
the general journal
must balance out. In other words, the sum of
must balance out
all debits must equal the sum of all credits for a
this means that your
single transaction.
DATE
DEBIT
CREDIT
Amount
Amount
DATE
DEBIT
Jan. 1
Checking Account
1,000
Rent Income
CREDIT
1,000
11
TRANS.
NO.
DATE
150
June 5
DEBIT
Checking Account
1,050
CREDIT
Rent Income
1,000
50
By the end of the year, your general journal will probably have hundreds of entries
just like these.
When it comes to double-entry bookkeeping, remember that each transaction in
the general journal must have at least one debit and at least one credit. That doesnt
mean you need an equal number of debits and credits. For example, you may have a
journal entry with one debit and two creditsthats okay as long as the total amount
of all the debits equals the total of all the credits.
General Ledger
The general ledger is a compilation of individual accounts, also called T accounts
because they are shaped like the letter T.
Here are the T accounts for the general journal entries we made above.
CHECKING ACCOUNTING
TRANS.
NO.
DEBIT
1,000
150
1,050
12
CREDIT
TRANS.
NO.
DEBIT
RENT INCOME
150
CREDIT
TRANS.
NO.
1,000
150
1,000
DEBIT
CREDIT
50
TIP>>
13
Heres a handy chart to help you remember all of this. Be sure to read the chart
from the outside in. For example, debits increase the value of an asset account, while
credits decrease them.
DEBITS
ACCOUNT TYPE
CREDITS
Assets
(things a property owns)
Increase
Decrease
Liabilities
(amounts a property owes)
Decrease
Decrease
Equity
(amounts that belong to the propertys
owners after subtracting whats owed)
Increase
Increase
Decrease
Increase
Expenses
(amounts a property spends)
Increase
14
Decrease
15
Cash Accounting
With cash accounting, you record the income on January 5 when Sam Paul
pays his rent.
TRANS.
NO.
DATE
Jan. 5
DEBIT
Checking Account
1,000
CREDIT
1,000
Rent Income
Rent payment from Sam Paul
ACCRUAL
Accounting
With accrual accounting, you record the income on January 1 when Sam Pauls
rent is due.
TRANS.
NO.
DATE
Jan. 1
DEBIT
Accounts Receivable
1,000
Rent Income
January rent due from Sam Paul
16
CREDIT
1,000
Cash Accounting
When youre on a cash basis, you record the expense on January 4 when
you pay the bill.
TRANS.
NO.
DATE
Jan. 4
Utility Expense
DEBIT
CREDIT
100
Checking Account
100
ACCRUAL
Accounting
When youre on an accrual basis, you record the expense on January 1 when you
receive the bill.
TRANS.
NO.
DATE
Jan. 1
Utility Expense
DEBIT
CREDIT
100
Accounts Payable
100
17
Financial Statements
Now that weve covered basic accounting terminology and concepts, its time to
take a look at the three main financial statements: the income statement, cash flow
statement, and balance sheet.
Income Statement
An income statement (also called a profit and
loss statement or P&L) is a summary of a
propertys profit or loss during a given period of
time. It shows total income, expenses, and net
incomethe amount of income that remains
after subtracting expenses.
The purpose of the income statement is to
show whether a property made or lost money
during the specified period. The important
thing to remember is that it represents a period
of time.
18
1 MAIN STREET
INCOME STATEMENT
Jan. 1 Jan. 31
Income
Rent Income
Late Fee Income
Total Income
1,000
100
1,100
Expenses
Repairs
Management Fees
200
200
Total Expenses
400
Net Income
700
1 MAIN STREET
CASH FLOW STATEMENT
Jan. 1 Jan. 31
Net Income
700
Accounts Receivable
Accounts Payable
700
0
700
Balance Sheet
A balance sheet shows what a company owns and what it owes at a specific
point in time. Its important to note that while income and cash flow statements
show an overview over a period of time, balance sheets show a snapshot of a specific
point in time.
A balance sheet is divided into three parts: assets, liabilities, and equity.
Remember assets are things a company owns, liabilities are amounts a company owes,
and equity is what belongs to the companys owners after subtracting whats owed.
1 MAIN STREET
BALANCE SHEET
Assets
Liabilities
1,700
Security Deposit
Liability
1,000
2,000
1,000
Accounts Receivable
Accounts Payable
Total Liabilities
2,000
Equity
Net Income
Retained Earnings
Total Assets
3,700
700
1,000
Total Equity
1,700
Total Liabilities
and Equity
3,700
Retained earnings: net profits or losses from prior years that have been not been
distributed to the companys owners
Net income: year-to-date profits or losses
19
Assets
Liabilities
1,700
1,000
2,000
1,000
Accounts Receivable
Accounts Payable
Total Liabilities
2,000
Equity
Net Income
Retained Earnings
Total Assets
20
3,700
700
1,000
Total Equity
1,700
3,700
1 MAIN STREET
CASH FLOW STATEMENT
Jan. 1 Jan. 31
Net Income
700
Accounts Receivable
Accounts Payable
700
0
700
1 MAIN STREET
INCOME STATEMENT
Jan. 1 Jan. 31
Income
Rent Income
Late Fee Income
Total Income
1,000
100
1,100
Expenses
Repairs
Management Fees
200
200
Total Expenses
400
Net Income
700
21
ION
SACT
N
A
R
T
E
PL AC
TAKES
TH E ACCOUNTI NG CYCLE
RECORD (OR
JOUR NALIZ E)
TRANSACTION
PR E PAR E
FINANCIAL
STATE M E N
TS
23
CHAPTER 2
L AN DLOR D
ACCOU NTING
IF YOURE LIKE most landlords, your job requires a lot of juggling. You have to take
care of your property and your tenants, simultaneously making sure that your investment is well cared for and that your tenants are happy. These two things, in and of
themselves, can easily be a full-time job.
No matter how good you are at managing your property and caring for your
tenants, though, the bottom line is that no landlord can run a successful, profitable
business without consistently adhering to basic accounting procedures. When you
think about it, your two main taskstaking care of your property and taking care
of your tenantsinherently involve cash flow. Youre probably frequently spending
money on property upkeep and, meanwhile, receiving rent money from tenants on a
monthly basis. And this is not to mention all the other miscellaneous expenditures
that likely occur on a weekly basis.
So the bottom line is, accounting is an important aspect of any landlords job.
In this chapter well go over the accounting procedures that you, as a landlord, are
most likely to deal with on a regular basis. Many of these concepts are most easily
understood when theyre set in real world scenarios. So for our purposes, lets assume
youre the proud new owner of a two-unit property called the Arlington. You have a
few minor repairs to make and are anxious to get your first tenants settled in.
Lets get started.
25
PERSONAL
FINANCES
ARLINGTON
Net Wort
h
Stateme
nt
Balance
Sheet
Contributing Funds
Now that youve separated your propertys books from your own, its time to figure
out how much money youll need to get your property up and running. You decide to
deposit $10,000 in a separate bank account set up specifically for the Arlington; this
money will cover the propertys expenses until the rent starts rolling in. Well call this
the Arlingtons operating bank account.
Your next step is to figure out how to record the $10,000 deposit on the Arlingtons books. Youve already learned that every transaction requires at least one debit
and one credit. But which accounts do you debit and which do you credit? Lets
review what we know so far:
26
NOTE> >
When we refer to equity,
were not talking about
the difference between the
propertys fair market value
and the unpaid mortgage
balance. Instead, were
talking about the difference
between the propertys
assets (what it owns) and its
liabilities (what it owes).
27
d the
d recor
n
a
d
a
gtons
Go ahe
e Arlin
h
t
n
i
t
deposi
al and
l journ
a
r
e
gen
r.
l ledge
genera
TRANS.
NO.
DATE
Dec. 1
DEBIT
28
CREDIT
Paying Bills
As things stand, the Arlington is a good property. And after a bit of work, it will be
a great propertyone that commands the best tenants and the highest rent in the
area. With your eye on the prize, you decide to have the apartments painted and the
hardwood floors refinished.
You call a few folks and finally settle on Do-It-All General Contracting. They give
you an estimate of $6,000 and ask for a $2,000 check up front to cover the cost of
the paint and materials.
First, you need to record the check to Do-It-All General Contracting on the books.
Again, lets review what we know:
You wrote a $2,000 check for maintenance from the Arlingtons
operating bank account.
The bank account is an asset and maintenance is an expense.
Assets and expenses are debit accounts; debits increase the value of
debit accounts.
The check decreased (credited) the bank balance and increased
(debited) maintenance expense.
29
d the
d recor
n
a
d
a
Go ahe
ngtons
the Arli
n
i
k
c
e
ch
al and
l journ
genera
r.
l ledge
genera
TRANS.
NO.
DATE
Dec. 1
DEBIT
10,000
Owner Contributions
Initial capital investment
for the Arlington
Dec. 5
Maintenance Expense
Operating Bank Account
Payment to Do-It-All
General Contracting
TIP>>
30
CREDIT
10,000
ACCRUAL
Paying Bills
With cash accounting, you recorded the maintenance expense when you wrote the
$2,000 check to Do-It-All General Contracting. With accrual accounting, you record
the expense when you receive the billin other words, before you pay it.
Here is what we know:
You owe Do-It-All General Contracting $2,000 for maintenance.
Maintenance is an expense.
Expenses are debit accounts; debits increase the value
of debit accounts.
You need to credit another account to offset the debit.
With accrual
accounting, you
record an expense
when you receive the
bill, even if you have
not yet paid it.
TRANS.
NO.
DATE
Dec. 5
DEBIT
Maintenance Expense
CREDIT
2,000
Accounts Payable
2,000
Notice that you havent paid the bill yet; youve just recorded the expense. You
want Do-It-All General Contracting to get started right away so you decide to write
them a check.
31
DATE
Dec. 5
DEBIT
Accounts Payable
CREDIT
2,000
2,000
Payment to Do-It-All
General Contracting
32
record
se
ad and
Go ahe t card purcha
i
d
e
r
c
the
ons
Arlingt and
in the
al
n
r
l jou
genera
r.
e
g
d
l le
genera
TRANS.
NO.
DATE
Dec. 5
DEBIT
Maintenance Expense
CREDIT
2,000
2,000
Dec. 6
Advertising Expense
Business Credit Card
Payment to local newspaper
33
TENANT
LEASE START
LEASE
TERM
MONTHLY
RENT
SECURITY
DEPOSIT
Sam Paul
Jan. 1
1 year
$1,000
$1,000
In order to secure his lease, Sam Paul writes a check for $2,000 to cover both
rent and his security deposit. You promptly deposit your first tenant check into the
Arlingtons bank account.
Now record the deposit on the books. Again, lets review what we know:
You deposited Sam Pauls $2,000 check into the Arlingtons
bank account.
Of that total amount, $1,000 is for first months rent and $1,000 is
for security.
The bank account is an asset, rent is income, and Sams
security deposit is a liability (because the security deposit still
belongs to Sam).
Assets are debit accounts; debits increase the value of debit accounts.
Income and liability accounts are credit accounts; credits increase the
value of credit accounts.
The deposit increased (debited) the bank balance, increased (credited) rent income, and increased (credited) security deposit liability.
34
he
ecord t
d and r
a
e
ns
h
a
t
Go
rling o
n the A
i
t
i
s
o
dep
al
l journ
genera
dger.
le
l
nera
and ge
TRANS.
NO.
DATE
Dec. 6
DEBIT
Advertising Expense
CREDIT
75
75
Dec. 22
35
ACCRUAL
Once again, remember that with accrual accounting, you record income and expenses
as you earn or owe money, regardless of when money actually changes hands. This
means you record the first months rent and security deposit the moment they are
due, even if you havent actually received payment yet.
Heres what we know:
Sam Paul owes $1,000 for his first months rent and $1,000 for the
security deposit.
Rent is income and the security deposit is a liability.
Income and liability accounts are credit accounts; credits increase the
value of credit accounts.
You need to debit another account to offset the credit.
36
So which account do you debit? A special asset account called accounts receivable;
this account represents money other people (like tenants) owe the property.
TRANS.
NO.
DATE
Dec. 22
DEBIT
Accounts Receivable
CREDIT
2,000
Rent Income
1,000
1,000
Its important to note that you now have $1,000 of rent income and $1,000 security deposit liability on the books even though you havent yet collected any money.
Heres what happens when you do collect the money and make the deposit.
TRANS.
NO.
DATE
Dec. 22
DEBIT
CREDIT
2,000
Accounts Receivable
2,000
37
38
he
ecord t
d and r
a
ns
e
h
a
g
Go
rlin to
n the A
i
r
e
f
s
tran
al and
l journ
genera
r.
l ledge
genera
TRANS.
NO.
DATE
Dec. 22
DEBIT
CREDIT
2,000
Rent Income
1,000
1,000
Dec. 22
39
Discounting Rent
After a few uneventful months, Sam Paul calls to let you know there are some broken
steps on the Arlingtons front porch. He reminds you that he does carpentry for a
living and offers to repair the steps for $200. Rather than paying him cash, you agree
to take $200 off next months rent. Sam then writes you a check for the balance,
which you deposit into the Arlingtons bank account.
Here is what we know:
You deducted $200 from Sams rent.
You deposited Sams $800 rent check into the Arlingtons bank
account; an asset.
Assets are debit accounts; debits increase the value of debit accounts.
Income accounts are credit accounts; credits increase the value of
credit accounts.
You know how to record the $800 deposit, but what about the $200 you deducted
from Sams rent? The answer is you debit repairs and credit rent income, but why?
When you deduct money from Sams rent, its as if you are giving him $200 to repair
the steps (an expense), which he then gives back to you as rent (income).
40
he
ecord t
d and r d $800
a
e
h
a
Go
t an
iscoun rling$200 d
eA
h
t in t
deposi eral journal
en
tons g ral ledger.
ne
e
g
d
an
TRANS.
NO.
DATE
Dec. 22
DEBIT
CREDIT
1,000
1,000
Apr. 28
Repairs Expense
Rent Income
Rent adjustment for repairs
by Sam Paul
May 1
41
ACCRUAL
Discounting Rent
DATE
Apr. 28
DEBIT
Repairs Expense
CREDIT
200
Accounts Receivable
200
May 1
Accounts Receivable
1,000
Rent Income
1,000
May 1
800
800
Lets look at the three transactions in this series. The $200 debit to repairs makes
sense, but why is the credit issued to accounts receivable rather than accounts
payable? After all, you owe Sam $200 for fixing the steps. In this particular scenario,
because Sam owes you $1,000, you reduce accounts receivable (what he owes you) by
$200 instead of adding the same amount to accounts payable.
Next you debit (increase) accounts receivable by $1,000 because Sam still owes
$1,000 in rent as usual. The final transaction is Sams $800 rent payment deposited to
the Arlingtons bank account.
42
43
record
ad and
e
y
h
a
o
G
securit ns
thheld
gto
n
li
r
the wi
A
e
t in th
deposi
al
n
r
u
jo
l
genera ral ledger.
ne
and ge
TRANS.
NO.
DATE
Apr. 28
DEBIT
Repairs Expense
CREDIT
200
Rent Income
200
May 1
Jan. 4
44
800
800
Now its time to pay Do-It-All. Remember, you just withheld $500 from Sams
security deposit to pay for the repairs. You could write a check from the security
deposit bank account but you decide to transfer $500 to your operating account and
write the check from there.
record
ad and
Go ahe action in
ns
the tra gtons
n
li
the Ar
l
journa
l
a
r
gene
dger.
le
l
a
r
e
n
and ge
TRANS.
NO.
DATE
Jan. 4
DEBIT
CREDIT
500
Other Income
500
Jan. 4
10
Jan. 5
Repairs Expense
Operating Bank Account
Payment to Do-It-All
General Contracting
45
TIP>>
ACCRUAL
DATE
11
Jan. 4
DEBIT
Accounts Receivable
CREDIT
500
Other Income
500
Jan. 4
500
500
The first transaction increases (debits) accounts receivable and increases (credits)
other income. You havent received any money, so why do you increase other income?
Because with accrual accounting, you recognize income when you earn it. In this
case, youve earned $500 (the amount of the damage assesment) even though you
havent received any money.
The second transaction decreases (debits) security deposit liability and decreases
(credits) accounts receivable. As is the case with cash accounting, you decrease security deposit liability when you withhold security; but instead of increasing income,
you decrease (credit) accounts receivable. In other words, Sam doesnt owe you $500
anymore because youve taken that amount out of his security deposit.
46
Next lets look at the bill from Do-It-All General Contracting. Just like before, you
record an expense on an accrual basis the moment you owe it.
TRANS.
NO.
DATE
13
Jan. 4
DEBIT
Repairs Expense
CREDIT
500
Accounts Payable
500
Finally, you write a check to Do-It-All General Contracting after transferring the
$500 you withheld to the operating account.
TRANS.
NO.
DATE
14
Jan. 4
DEBIT
CREDIT
500
500
Jan. 5
Accounts Payable
500
500
47
48
d the
d recor
n
a
d
a
Go ahe
Arlingin the
refund eral journal
en
tons g ral ledger
ne
e
g
d
an
TRANS.
NO.
DATE
Jan. 4
DEBIT
CREDIT
500
500
Jan. 5
Repairs Expense
500
500
Payment to Do-It-All
General Contracting
11
Jan. 6
49
Chapter 3
PROPE RT Y
MANAG E R
ACCOU NTING
50
NOTE>>
51
You now have three sets of books: one for your property management company,
one for Arlington, and one for Plainville. As if keeping all of this straight werent
enough, you should also be aware that some transactions will affect the books for
both the Plainville and your property management company (see page 60 on property
management fees for an example). Remember, the key question for consideration
throughout this chapter will be which set of books each transaction is recorded in.
MANAGEMENT
COMPANY
ARLINGTON
PLAINVILLE
Balance
Sheet
Balance
Sheet
Balance
Sheet
In addition to keeping separate books, you will also need to maintain separate
bank accounts, each with a distinct purpose. First of all, youll want to open a bank
account for your new property management business. This is where youll deposit
money earned from property management fees. You will also want to open two
accounts for the properties you manage. One of these accounts will hold rent income;
the other will hold tenant deposits.
Which brings us to your next property management task
MANAGEMENT
COMPANY BANK
ACCOUNT
52
RENTAL
INCOME BANK
ACCOUNT
DEPOSIT BANK
ACCOUNT
53
record
ad and
n
Go ahe r contributio
e
n
w
o
the
nvilles
in Plai
al
l journ
a
gener
dger.
le
l
a
ner
and ge
TRANS.
NO.
DATE
Dec. 20
DEBIT
54
CREDIT
ACCRUAL
DATE
Dec. 20
DEBIT
Accounts Receivable
CREDIT
500
Owner Contributions
500
Dec. 20
500
Accounts Receivable
500
First you debit (increase) accounts receivable $500the amount you need to
collect from the rental owner. Next you credit (increase) owner contributions.
Finally, you record the deposit by debiting (increasing) the rent bank account and
crediting (decreasing) accounts receivable.
55
56
record
ad and ion
Go ahe
ss
e
t conc
the ren illes
nv
in Plai
al
l journ
a
r
gene
dger.
le
l
a
r
e
n
and ge
TRANS.
NO.
DATE
Dec. 20
DEBIT
CREDIT
500
Owner Contributions
500
Jan. 1
57
ACCRUAL
DATE
Jan. 1
DEBIT
CREDIT
500
Accounts Receivable
500
First you debit (increase) rent concessions $500. Next you credit (decrease)
accounts receivable. Its as if the rental owner gives Beth $500 (an expense) and Beth
then applies it toward the money she owes (accounts receivable).
58
record
ad and
Go ahe
d last
first an
nts in
Beths
payme
s rent
rnal
l
a
month
r jou
s gene
le
il
v
Plain
dger.
neral le
and ge
TRANS.
NO.
DATE
Jan. 1
DEBIT
CREDIT
500
Rent Income
500
Jan. 1
Jan. 1
59
ACCRUAL
DATE
Jan. 1
DEBIT
CREDIT
2,000
Accounts Receivable
Rent Income
1,000
1,000
Jan. 1
500
500
Accounts Receivable
First months rent from Beth Bow
6
Jan. 1
1,000
1,000
First you debit (increase) accounts receivable $2,000the amount owed for first
and last months rent. Next you record the two payments you deposited by debiting
(increasing) the rent and deposit bank accounts and crediting (decreasing) accounts
receivable.
60
he
ecord t
d and r illes
a
e
h
a
Go
inv
e in Pla and
expens
l
a
n
r
u
l jo
genera
r.
e
g
d
le
l
genera
TRANS.
NO.
DATE
Jan. 1
DEBIT
CREDIT
500
Rent Income
500
Jan. 1
1,000
1,000
Jan. 10
61
ACCRUAL
TRANS.
NO.
DATE
Jan. 10
DEBIT
CREDIT
200
200
Accounts Payable
Bill from management company
8
Jan. 10
Accounts Payable
200
200
62
e
cord th
and re nvilles
d
a
e
h
Go a
Plai
draw in and
owner
l
a
n
l jour
genera
r.
l ledge
a
r
gene
TRANS.
NO.
DATE
Jan. 10
DEBIT
CREDIT
200
200
Jan. 15
Owner Draws
Rent Bank Account
Payment to rental owner
63
64
record
ad and
Go ahe yment
pa
Beths
nvilles
i
la
P
in
al
l journ
genera ral ledger.
ne
and ge
TRANS.
TNO.
DATE
Jan. 15
DEBIT
Owner Draws
CREDIT
300
300
May 5
65
ACCRUAL
When you do things on an accrual basis, you record $1,000 of income on May 1 and
another $50 on May 4, even though Beth has not yet paid either amount.
Heres what we know:
Beth owes $1,000 for rent on May 1 and an additional $50 late fee on
May 4.
Rent and late fees are both income.
Credits increase the value of income accounts.
A
ccounts receivable is a special asset account that represents money
tenants owe.
Debits increase the value of asset accounts.
TRANS.
NO.
DATE
10
May 1
DEBIT
Accounts Receivable
CREDIT
1,000
Rent Income
1,000
May 4
Accounts Receivable
Late Fee Income
Late fee due from Beth Bow
66
50
50
On May 1, you debit (increase) accounts receivable $1,000 and credit (increase)
rent income. On May 4, you debit accounts receivable another $50 and credit late fee
income. At this point, Beth owes $1,050.
Heres what happens when you collect the money and make the deposit on May 5.
TRANS.
NO.
DATE
12
May 5
DEBIT
CREDIT
1,050
Accounts Receivable
1,050
You debit (increase) the rent bank account and credit (decrease) accounts receivable, bringing Beths accounts receivable balance down to $0.
Refunding an Overpayment
At the end of Beths lease, she gives notice that she will be vacating her unit. She
writes you a check for $1,000, forgetting that she pre-paid her last months rent
when she moved in. Soon after depositing the check, you realize the mistake and
write her a check to refund the overpayment.
Lets review what we know:
You deposited Beths check for her last months rent to the rent
account.
You wrote Beth a check for the same amount out of the rent account.
Credits increase income and debits increase assets.
67
record
d
ad and
Go ahe erpayment an
v
o
s
s
e
h
Bet
nvill
in Plai
refund
l and
a
n
r
l jou
genera
r.
l ledge
genera
TRANS.
NO.
DATE
May 5
DEBIT
Dec. 1
Dec. 1
Rent Income
Rent Bank Account
Refund to Beth Bow for overpayment
68
CREDIT
1,050
50
1,000
69
record
ad and ns
Go ahe
io
t
ransac
these t illes
nv
in Plai
al and
l journ
a
r
gene
r.
l ledge
genera
TRANS.
NO.
DATE
Dec. 1
DEBIT
CREDIT
1,000
Rent Income
1,000
Dec. 1
Rent Income
Rent Bank Account
Refund to Beth Bow for overpayment
10
Dec. 1
11
Dec. 1
70
1,000
1,000
ACCRUAL
TRANS.
NO.
DATE
15
Dec. 1
DEBIT
Accounts Receivable
CREDIT
1,000
Rent Income
1,000
Dec. 1
1,000
Accounts Receivable
1,000
Dec. 1
1,000
1,000
The first transaction increases (debits) accounts receivable and increases (credits)
rent income. The second transaction decreases (debits) prepaid rent liability and
decreases (credits) accounts receivable. As is the case with cash accounting, you
decrease prepaid rent liability when you apply it to rent; but instead of increasing
income, you decrease (credit) accounts receivable. In other words, Beth doesnt owe
you $1,000 for her last months rent because you collected it upfront when she signed
the lease.
71
APPEN DIX
Congratulations!
By now you should be able to handle all of the basic property management transactions. Because much of this information is not necessarily intuitive, when you start
out should refer back to this guide whenever necessary. Before long, though, youll
find yourself completing these day-to-day transactions without thinking twice.
In this chapter youll find the complete general ledgers and general journals from
Chapters 2 and 3 to check your work.
If you are interested in learning more about accounting or additional transactions,
we recommend Bookkeeping Made Simple by David A. Flannery and The Accounting
Game: Basic Accounting Fresh from the Lemonade Stand by Darrell Mullis and Judith
Orloff. For questions about Buildiums online property management software, contact
us at sales@buildium.com or visit us at www.buildium.com.
72
DATE
Dec. 1
DEBIT
Operating Bank Account
CREDIT
10,000
Owner Contributions
10,000
Dec. 5
Maintenance Expense
2,000
2,000
Dec. 6
Advertising Expense
75
75
Dec. 22
2,000
Rent Income
1,000
1,000
Dec. 22
1,000
1,000
Apr. 28
Repairs Expense
200
Rent Income
200
May 1
800
Rent Income
800
Jan. 4
500
Other Income
500
Jan. 4
500
500
Jan. 5
Repairs Expense
500
500
Jan. 6
500
500
APPENDIX
73
DEBIT
10,000
2
4
CREDIT
2,000
2,000
TRANS.
NO.
DEBIT
1,000
CREDIT
500
11
500
TRANS.
NO.
800
500
10
TRANS.
NO.
500
DEBIT
1,000
200
800
CREDIT
75
DEBIT
CREDIT
500
MAINTENANCE EXPENSE
TRANS.
NO.
DEBIT
2,000
TRANS.
NO.
OWNER CONTRIBUTIONS
74
DEBIT
CREDIT
10,000
DEBIT
200
10
500
CREDIT
1,000
500
11
500
CREDIT
ADVERTISING EXPENSE
REPAIRS EXPENSE
TRANS.
NO.
DEBIT
TRANS.
NO.
CREDIT
SECURITY DEPOSIT
LIABILITY
OTHER INCOME
TRANS.
NO.
DEBIT
1,000
TRANS.
NO.
RENT INCOME
SECURITY DEPOSIT
BANK ACCOUNT
CREDIT
DEBIT
75
CREDIT
Chapter 2
ACCRUAL
TRANS.
NO.
DATE
Dec. 1
CREDIT
10,000
Owner Contributions
10,000
Dec. 5
Maintenance Expense
2,000
Accounts Payable
2,000
Dec. 5
Accounts Payable
2,000
2,000
Dec. 6
Advertising Expense
75
75
Dec. 22
Accounts Receivable
2,000
Rent Income
1,000
1,000
Dec. 22
2,000
Accounts Receivable
2,000
Dec. 22
1,000
1,000
Apr. 28
Repairs Expense
200
Accounts Receivable
200
May 1
Accounts Receivable
1,000
Rent Income
1,000
May 1
800
Accounts Receivable
800
Jan. 4
Accounts Receivable
Other Income
500
500
APPENDIX
75
Chapter 2
ACCRUAL
TRANS.
NO.
DATE
12
Jan. 4
CREDIT
500
Accounts Receivable
500
Jan. 4
Repairs Expense
500
Accounts Payable
500
Jan. 4
500
500
15
Jan. 5
Accounts Payable
500
500
16
Jan. 6
76
500
500
Chapter 2
ACCRUAL
OPERATING
BANK ACCOUNT
TRANS.
NO.
DEBIT
10,000
3
6
CREDIT
2,000
800
14
500
15
DEBIT
CREDIT
2,000
500
500
DEBIT
500
16
500
DEBIT
CREDIT
1,000
1,000
ACCOUNTS
RECEIVABLE
TRANS.
NO.
DEBIT
DEBIT
CREDIT
2,000
500
2,000
200
11
TRANS.
NO.
DEBIT
CREDIT
1,000
12
500
16
500
TRANS.
NO.
DEBIT
2,000
CREDIT
1,000
10
11
800
500
12
500
CREDIT
TRANS.
NO.
DEBIT
CREDIT
75
REPAIRS EXPENSE
TRANS.
NO.
75
DEBIT
CREDIT
OWNER CONTRIBUTIONS
TRANS.
NO.
14
MAINTENANCE EXPENSE
ADVERTISING EXPENSE
1,000
CREDIT
SECURITY DEPOSIT
LIABILITY
2,000
13
TRANS.
NO.
TRANS.
NO.
500
15
DEBIT
OTHER INCOME
ACCOUNTS
PAYABLE
TRANS.
NO.
TRANS.
NO.
1,000
10
TRANS.
NO.
RENT INCOME
SECURITY DEPOSIT
BANK ACCOUNT
10,000
DEBIT
200
13
500
CREDIT
CREDIT
10,000
APPENDIX
77
DATE
Dec. 20
DEBIT
Rent Bank Account
CREDIT
500
Owner Contributions
500
Jan. 1
500
Rent Income
500
Jan. 1
500
Rent Income
500
Jan. 1
1,000
1,000
Jan. 10
200
200
Jan. 15
Owner Draws
300
300
May 5
1,050
50
Rent Income
1,000
Dec. 1
1,000
Rent Income
1,000
Dec. 1
Rent Income
1,000
1,000
Dec. 1
1,000
Rent Income
1,000
Dec. 1
1,000
78
1,000
TRANS.
NO.
DEBIT
RENT
INCOME
RENT BANK
ACCOUNT
CREDIT
TRANS.
NO.
DEBIT
CREDIT
500
500
500
500
200
1,000
300
1,000
1,050
1,000
10
9
11
1,000
CREDIT
1,000
11
1,000
DEBIT
CREDIT
50
1,000
DEBIT
CREDIT
1,000
RENT CONCESSIONS
EXPENSE
TRANS.
NO.
DEBIT
1,000
MANAGEMENT FEES
EXPENSE
TRANS.
NO.
TRANS.
NO.
4
10
DEBIT
200
OWNER DRAWS
1,000
1,000
OWNER CONTRIBUTIONS
TRANS.
NO.
DEBIT
CREDIT
CREDIT
200
TRANS.
NO.
DEBIT
DEBIT
CREDIT
500
CREDIT
300
APPENDIX
79
Chapter 3
ACCRUAL
TRANS.
NO.
DATE
Dec. 20
Accounts Receivable
CREDIT
500
Owner Contributions
500
Dec. 20
500
Accounts Receivable
500
Jan. 1
500
Accounts Receivable
500
Jan. 1
Accounts Receivable
2,000
Rent Income
1,000
1,000
Jan. 1
500
Accounts Receivable
500
Jan. 1
1,000
Accounts Receivable
1,000
Jan. 10
200
Accounts Payable
200
Jan. 10
Accounts Payable
200
200
Jan. 15
Owner Draws
300
300
May 1
Accounts Receivable
1,000
Rent Income
1,000
May 4
Accounts Receivable
50
50
May 5
1,050
Accounts receivable
Rent payment from Beth Bow
80
1,050
TRANS.
NO.
DATE
13
Dec. 1
DEBIT
Rent Bank Account
CREDIT
1,000
Rent Income
1,000
Dec. 1
Rent Income
1,000
1,000
Dec. 1
Accounts Receivable
1,000
Rent Income
1,000
Dec. 1
1,000
Accounts Receivable
1,000
Dec. 1
1,000
1,000
APPENDIX
81
Chapter 3
ACCRUAL
TRANS.
NO.
DEBIT
ACCOUNTS
RECEIVABLE
RENT BANK
ACCOUNT
CREDIT
TRANS.
NO.
DEBIT
CREDIT
500
500
500
500
200
300
500
2,000
1,050
500
13
1,000
1,000
1,000
17
1,000
10
1,000
11
50
12
BUSINESS CREDIT CARD
TRANS.
NO.
DEBIT
CREDIT
15
1,000
1,000
DEBIT
CREDIT
TRANS.
NO.
DEBIT
82
DEBIT
11
CREDIT
TRANS.
NO.
DEBIT
CREDIT
1,000
10
1,000
13
1,000
1,000
1,000
200
DEBIT
CREDIT
50
TRANS.
NO.
DEBIT
OWNER DRAWS
CREDIT
OWNER CONTRIBUTIONS
DEBIT
1,000
15
500
TRANS.
NO.
17
14
MANAGEMENT FEES
EXPENSE
TRANS.
NO.
1,000
TRANS.
NO.
75
RENT CONCESSIONS
EXPENSE
CREDIT
RENT
INCOME
1,050
16
DEBIT
TRANS.
NO.
12
14
TRANS.
NO.
CREDIT
16
500
300
CREDIT
1,000
1,000