Property Management Accounting – Part 1 of 6
PROPERTY MANAGEMENT ACCOUNTING OVERVIEW
People always ask me accounting questions and I usually give a well thought out answer of, “How should I Know?… You should probably ask an accountant.” Well, the truth is that I do know accounting and I know it very well. Since I’ve never seen a good explanation of real estate (property management) accounting/bookkeeping online, I’m going to lay out the overview for you. This blog will contain enough info so that if you know nothing about accounting, by the end, you’ll be able to run the books. (So this isn’t really a blog… It’s kind of an article that I posted in our blog… and I’m typing as if I’m talking.) If you deal with bookkeeping/accounting at all, bookmark this page and keep it as a reference. If you’re in college and have your first financial accounting exam tomorrow, this will also help you.
I’m almost embarrassed to admit this, but accounting can actually be fun if you think of it like a puzzle where you’re trying to fit transactions correctly into the accounts. I mean, it’s probably not fun enough to do on a date… it’s more of a step up from watching paint dry kind of fun…
I designed the layout and specifications for the Total Management accounting system, so I’m going to use real examples; both basic and very complicated. A lot of the explanations will be done through examples. I’ll group the examples by sections based on real estate issues, such as Security Deposits/Rent Payments/etc… The truth is that we designed Total Management so that all of the accounting is done automatically, without the need for any understanding of accounting. So, this blog really isn’t of much use to our current customers… but what property management software are YOU currently using?…
(I have to give us a plug every now and then.)
I’m going to lay this overview out in sections so that people with no accounting experience can start at the beginning and advanced people can pickup wherever they need. These sections will appear in a few separate blog posts. The sections are as follows:
- What is Double-Entry Bookkeeping?
- A Few Definitions
- Seriously, what is a Debit and a Credit… I mean… Seriously?
- and why is it that sometimes a debit increases an account and sometimes decreases it. Is this some kind of game… Seriously?
- The Different Types of Accounts
- What do I do now? – Examples
- Closing the books
- Financial Reports
Note: One of the challenges of accounting/bookkeeping is that it’s something that makes little sense, until you understand the whole picture. At that point, it just clicks. Until that point, it’s frustrating and you’re not the only one in that position. In order to understand accounting/bookkeeping, you have to just keep taking in the information until you get the whole picture. During that time, you’ll feel like your understanding of each topic is hanging on by a string.
Note 2: Since this is real estate accounting, I’m not going to cover cost of goods sold.