Good property management accounting lets you see how much profit each property is making. It allows accurate expenses recording to be able to take advantage of tax deductions. Property management accounting makes it easy to report income and expenses separately for each property – something the HMRC requires you to do.
Here are the essential steps to start off your property management accounting.
Step 1: Open separate business accounts
The size of your rental property doesn’t matter, you need to treat it as a business. This means the separation of your business finances and personal by opening a business checking account.
This account will mean that all income from the property goes into and out of that one account, where you can easily see and track it. If you have more than one property, it would probably be wise to open a separate account for each. This will make it easier to track your finances.
Step 2: Set up a chart of accounts
Your chart of accounts is like a cheat sheet for doing your books. Whenever you enter a transaction for your rental, you reference the chart of accounts.
It lists every account, or ledger, that a transaction can be sorted into. This will show you whether that account is for expenses or income.
Having a more complex chart will give you a more detailed insight into how money enters or leaves your business.
Step 3: Set up your journal
Your journal should be at the centre of your accounting system. This is where you track transactions as they occur. It’s smart to organize your journal by month. For instance, if you’re doing your bookkeeping in Excel, you might have a separate sheet for each month of the journal.
Keep in mind, this is for single-entry bookkeeping. Single-entry is an accounting style that’s suited to fairly simple businesses, for example as the laneway AirBnB rental.
However, if you have more than 1 properties giving you income, it would be advisable in this case to use a double-entry bookkeeping system. It takes more work to maintain, but it’s better for organizing lots of different transactions and ledgers. If you’re interested, we’ve got a simple guide to double-entry accounting to help you get started.
How Can We Help?
Here at Carrington Blake Accountancy, we offer a wide range of services for property owners. Our services range from; bookkeeping, property management accounts, tax returns and self-assessment, and property portfolio management. We can also do your property owners liability insurance.