Real Estate Accounting: A Complete Guide for 2024

If you use an official accounting system, that system will automate much of the behind-the-scenes work. This is a massive benefit in terms of time and convenience, but you should continually monitor and perform monthly checks on your accounts. Understanding the division between bookkeeping and accounting gives you more confidence and helps you know when to delegate tasks to other professionals in these crucial areas. There is also concern about the possibility of a US recession, which has affected decision making for companies in all industries, including real estate.

You can also take clues from the latest digital trends in accounting and finance that help you. Mobile applications and portable scanners can go a long way to helping you instantaneously scan receipts. Digital receipts are a great convenience, especially if you have lost receipts or need them for financial audit purposes.

Quick-reference list of accounts in accounting

Rental property owners can sign up for a free account with Stessa to automatically track income and expenses, receive personalized recommendations for maximizing revenue, and access the Stessa Tax Center. Like any other accounting practice, accounting in real estate is used for many reasons. One of the chief reasons is to provide an accurate and clear picture of the overall health of a business. Another reason is for tax purposes and to quickly assemble the required documents for an audit if one’s business is selected. In short, managing your real estate accounting procedures is about more than personal preference. You must comply with how your county, city, or state regulates real estate income, such as state tax obligations or business license requirements.

Keeping these funds separate is a best practice in real estate accounting that contributes to the overall financial health and integrity of your business. Intuit QuickBooks offers four plans ranging from $15 per year (for three months) to $549.99 per year. Xero offers three plans ranging from $15 to $78 per month (90 percent off for the first three months during the current promotion). Its Early plan offers quotes and up to 20 invoices per month, bill payment for up to five bills, bank reconciliation, bill and receipt capture tools and short-term cash flow and business snapshots. Their Growing and Established plans offer added features like bulk-transaction reconciliation, multicurrency support, analytics, expense tracking and management tools and project tracking tools. Real estate accounting software should offer key basic features, such as the ability to accept online payments, send invoices, figure tax deductions and track expenses.

User account menu

Instead of having to go to the bank daily to process payments, you can offer a list of accepted cards for added convenience and instant payment processing. If you want to run a successful real estate business, you have to take accounting seriously. That means using every possible resource to help you get ahead. Hiring a good accountant and bookkeeper will give you an immediate advantage. It will allow you to work closely with your accountant and bookkeeper. Remember, effective real estate accounting isn’t just about keeping books for tax purposes—it’s about using financial information as a tool for strategic planning and decision-making in your business.

• As you can see, accounting doesn’t only keep track of past financial records.
• While these risks alone make a compelling argument for hiring a real estate accountant, there’s a brighter side to the story.
• Streamline your small business’s accounting work with FreshBooks real estate accounting software.
• This makes it easier to understand what the transaction is for and why it was made.
• Real estate accounting is a specialized branch of accounting that focuses on managing the financial transactions related to a real estate business.
• In fact, KPMG LLP was the first of the Big Four firms to organize itself along the same industry lines as clients.
• Your company will need many different performance reports, including income statements.

Your company will need many different performance reports, including income statements. Net cash flow reports are also necessary and will show the cash moving in and out of the account during certain periods. The goal of real estate accounting is to make sure you have a dependable system for handling taxes and income.

Double-Entry Bookkeeping (Debit and Credit)

Schedule a monthly meeting to review your incoming cash and outgoing expenses. If the numbers are off track, this regularity allows you to pivot and track down errors in your accounts without huge time lags. Whether you work on smaller real estate deals or spend your time negotiating large-scale corporate contracts, maintaining proper accounting records is crucial for any real estate business to succeed.

While speaking of accounting, the property owners or managers should pay attention to the invoices, collected rent, security deposit holdings, and payments made to the contractor. There may have been a mistake in your company’s tax filing that led to an IRS audit. It is better to be meticulous about your accounting than to end up with heavy penalties. Hiring a trained and skilled accountant is, therefore, advantageous. In addition to audit defense training, accountants will know how to deal with the IRS and how to gather any financial information that they need. If you plan properly, your real estate business could benefit from numerous tax advantages.