A major source of confusion in the Property Management World is when there is a need to post charges to a Tenant Ledger. Any money received from a tenant is income and should be coded to an income GL account.
For the purpose of this discussion, we will use the example of a duplex at 1111 Anywhere Street that has two units. Our lovely tenant Mary lives in Unit A and our friend Joe lives in Unit B.
It has been explained within the terms of the tenant leases that each tenant will pay 50% of the water bill monthly. April 1st rolls around and the water bill is emailed to the PM company.
At that time, the bookkeeper will post a bill to the Water Expense GL account and pay it. At the same time, the bookkeeper will charge 50% of the water bill each to Mary and Joe using the Utility Reimbursement Income GL account.
Many times, the person posting a transaction like this, will post the tenant charge to the same expense account as the vendor bill was paid. This is not an accurate recording and would overstate expenses on the property and understate income to the Owner. This would typically be seen as a negative on the Income statement. This type of accounting would not pass a review should the books be audited.
Another prime example of tenant charge postings is seen during a move out of a tenant. There is sometimes the need to record expenses to a tenant’s ledger at the time of a move out due to property damages, etc. The person recording the expenses might record these expenses to an expense GL account. However, all money received from a tenant is income and should be recorded with an income GL account.
A typical income GL account for painting or other repairs might be something like 4110: Maintenance Repairs just to use as an example. GL accounts do not always look the same in each company database and not all Property Managers utilize a standardization for their Chart of Accounts within their accounting software.
Many use their own naming conventions that suit their individual needs. It is not important as to what you name the GL code as long as it is an “Income” type account when you are recording the receipt of funds from a tenant.In some ways, the naming of an account code is not important but it is helpful to use consideration when setting up your GL accounts.
Keep in mind that the first consideration would be that the accounting (debits/credits) is correct and then you'll want to consider how this will generate within a financial report and if it displays useful information.
Be on the lookout for new content on this blog page that offers valuable information to the Property Management community on various subjects. As always, know that APM Help is here for you should you need any assistance? If you are a busy property manager losing sleep over bookkeeping, reach out to us today for a free consultation.
