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March 12, 2024 by oscpatax_wpadmin in Blog

Accounting for Property Managers: A Comprehensive Guide

Managing property finances is more intricate than handling individual or business accounts. Precise property management accounting plays a vital role for various reasons.

Firstly, it aids in monitoring your financial situation and spotting opportunities to save money or boost revenue. Secondly, it ensures adherence to tax laws, preventing expensive penalties. Lastly, it equips you with the insights needed to make well-informed business decisions.

This comprehensive guide will simplify property management accounting for you, making it easy to grasp and implement.

Table of Contents

What is Accounting for Property Managers?

Accounting for property managers, also known as real estate accounting, involves managing the financial aspects of a collection of properties owned by a single individual or a real estate company.

Understanding Property Management Accounting for Investors

Property management accounting is all about keeping tabs on the money side of owning and running rental or association properties, including any income or expenses tied to the property or your own business. It is an important part of property management because it helps you stay on top of your finances, make smart decisions, and stick to the rules of tax laws and regulations.

Accounting in property management is a specialized field focused on handling the money aspects of owning and running rental properties. It involves tasks like

Getting the numbers right is crucial for property managers to make good decisions about their business and follow the rules of tax laws and regulations.

understanding-property-management-accounting
accounting-for-portfolio-managers

Accounting for Portfolio Managers

Portfolio accounting is like keeping an eye on how well each investment in your collection of stocks is doing. It involves checking which investments are doing well and which ones might need some changes, like adding more or reducing. The goal is to make sure your collection of investments matches what you’re comfortable with in terms of risk and meets your expectations for growing your money. So, it’s like managing your group of investments to make sure they’re working the best for you.

Accounting for Investors

Investment accounting is a specific type of accounting that concentrates on keeping tabs on and overseeing investment-related transactions. Usually, investment accountants are employed by financial institutions like banks or credit unions. However, they might also work independently or as part of an advisory firm.

Top 15 Terms for Property Management Accounting

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These are the 15 must-know terms for property management accounting. Let’s get started!

Accounting Period

An accounting period is a timeframe covered in a financial statement, often spanning one or more days, months, or years. If you have ever generated a report in QuickBooks for property management or similar accounting software to check your income, costs, or other details, you will notice that each report is based on a specific accounting period.

Accounts Payable

Accounts payable is the amount of money your business owes to vendors. It typically involves payments for products or services that you use to operate your business, like the bill for a contractor fixing a property.

Account Receivable

This is the money you are currently owed for your services. It includes any outstanding invoices, unpaid fees, or rent balances.

Accural Accounting Method

This property management accounting method records transactions based on the date they occur, regardless of when the payment is made or received. It is mandatory for any business with employees to use this accounting approach.

Asset

An asset is something owned by the business that holds value. The most apparent examples are the properties owned, but it can also encompass cash deposits, land, and the money owed to you (accounts receivable).

Bank Reconciliation

It is important to regularly verify that your general ledger aligns with the actual balance stated in your business bank accounts. This verification process is known as bank reconciliation.

If your bank account shows a lower balance than your general ledger, you will need to figure out which transactions were missed in your general ledger and include them to maintain accurate records.

Bookkeeping 

Bookkeeping in property management is essentially the same as business accounting; it involves recording the transactions that form the basis of your business’s accounting data.

Cash Accounting Method

The cash accounting method logs transactions when they are paid or when payment is received, depending on whether you’re settling a bill or getting paid by a tenant. This method is commonly used by sole proprietors, especially in the early stages of managing their accounts. However, it is important to note that businesses with employees are mandated to use the accrual accounting method

Depreciation

Depreciation is a way to measure how the value of an asset decreases over time. For instance, if you buy construction equipment for property development, its value will go down each year due to different factors. Keeping track of the actual depreciation numbers is important, as it might be eligible for tax deductions, depending on the item.

Equity

Equity represents the value or ownership stake in the business. If you’re the owner, your equity is calculated by subtracting your liabilities from your assets.

Expense

Depreciation is a way to measure how the value of an asset decreases over time. For instance, if you buy construction equipment for property development, its value will go down each year due to different factors. Keeping track of the actual depreciation numbers is important, as it might be eligible for tax deductions, depending on the item.

Financial Statement

A Financial statement is not a single document; rather, it encompasses any report providing information about the financial well-being of a business. Examples include balance sheets, profit and loss statements, and income statements. When a lender or auditor requests financial statements, they usually specify the particular report they require.

General Ledger

Your general ledger (GL) is a comprehensive log of all your business transactions.

Liabiliaty

A liability is a debt or obligation that a company owes. Examples of liabilities include accounts payable, mortgages, payroll obligations, and loans. 

Revenue

Revenue is the income earned by your business during a specific period. For instance, if you’re a landlord and receive payment from a tenant (or if you’re a property management company and receive payment from a landlord), that amount is considered revenue.

How to Set Up Your Property Management Accounting

Now that you grasp the key property management accounting terms, it’s time to establish a robust accounting system for your business. Follow these steps to guarantee precise and efficient financial management:

Determine Your Accounting Needs

Evaluate the complexity and size of your property management business first. This will help you decide the appropriate level of accounting system needed. If you handle just a few properties and transactions, a simple spreadsheet or basic accounting software might be enough. However, for larger operations, think about investing in specialized property management accounting expert.

Choose Your Accounting Method

There are two main property management accounting methods:

Cash Basis Accounting

In cash-based accounting, you record transactions as soon as money is received or sent, whether for your services, property sales, or contractor payments.

For example, if a tenant pays you $1,500 rent for September, you would enter that amount in your accounting program right away. This method is straightforward and intuitive, making it a common choice for sole proprietors. However, it might change when you have employees on payroll.

Accrual Accounting

With the accrual accounting method, transactions are recorded when they occur. If a tenant pays rent for the month, you record that transaction in that month. However, if a tenant pays several months upfront, you would only enter this month’s rent as a transaction, even if the funds are already in your bank account.

Choose Accounting Service

Select property management accounting services that cater to your specific needs. Look for software with features like rent tracking, expense management, reporting, and integration with tools such as tenant portals and online payment systems.

Set Up Individual Property Accounts

Create separate accounts for each property managed using your accounting software. This allows for the tracking of income, expenses, and other financial details unique to each property.

Establish a Chart Accounts

Develop a chart of accounts to categorize financial transactions effectively. This organization ensures accurate record-keeping and simplifies the reporting process, encompassing categories like revenue, expenses, assets, liabilities, and equity.

Implement Rent Roll Management

Create a rent roll, a spreadsheet tracking rental income for each property and tenant. Include details like tenant names, rental amounts, lease terms, and payment history to monitor rent payments and identify any delinquencies.

Automate Rent Collection and Invoice Payments

Leverage your accounting software to automate rent collection and invoice payments. Set up online payment options for tenants, streamlining the process and ensuring timely payments, reducing manual effort, and minimizing errors.

Perform Monthly Bank Reconciliations

Regularly reconcile bank statements with accounting records to ensure accuracy. Identify and rectify discrepancies promptly to maintain financial integrity.

Generate Financial Reports

Hire a property management accountant to generate essential financial reports such as income statements, balance sheets, and cash flow statements. These reports offer insights into your business’s financial health and performance.

Seek Professional Assistance for Taxes

Engage the services of a professional accountant or tax advisor for annual tax preparation. They ensure compliance with tax regulations, identify deductions, and optimize your tax strategy.

Review and Analyze Financials Regularly

Consistently review and analyze financial statements to gain insights into your property management business’s performance. Identify areas for improvement, track profitability, and make informed decisions based on financial data.

Reporting and Financial Statements for Property Management

balance-sheet
Reporting and financial statements are key tools in property management accounting, offering valuable insights into your business’s financial health and aiding informed decision-making. Here are some essential reports and financial statements to familiarize yourself with:

Balance Sheet

A balance sheet provides a snapshot of your business’s financial status at a specific point in time, displaying your assets, liabilities, and equity.

Income Statement

An income statement reveals your business’s revenue and expenses over a specific period, offering insights into your financial gains or losses.

Cash Flow Statement

A cash flow statement illustrates the movement of cash in and out of your business during a specific period. It helps gauge available cash for bill payments, property investments, or owner distributions.

General Ledger

The general ledger maintains a record of all financial transactions in your business, detailing each transaction’s date, amount, account name, and description.

Best Practice for  Property Management Account

To enhance the efficiency and accuracy of your property management accounting, consider incorporating the following best practices:

Analyzing Cash Flow

Analyze your property management business’s cash flow regularly to ensure financial health. Monitor rental income, expenses, and cash reserves to maintain a positive cash flow and plan for future investments.

Hiring an Accounting Expert for Efficiency

Hire a property management accounting expert to streamline processes and save time

Managing Your Property Ops and Administrative Accounts Separately

Keep administrative expenses separate from property-related costs by maintaining distinct accounts. This ensures accurate record-keeping and facilitates better financial analysis.

Maintaining an Accurate Rent Roll

Hire a property management accounting expert to streamline processes and save time

manbage-your-property-op-maintainng-an-accurate-rent-roll
optimize-your-chart-of-accounts-and-review-financial-performance

Optimizing Your Chart of Accounts

Review and optimize your chart of accounts regularly to align with evolving business needs. Avoid unnecessary accounts and consolidate where possible to simplify financial management.

Reviewing Financial Performance
Annually review your property management business’s Financial performance, focusing on key metrics such as capital appreciation, rental cash flow, tax benefits, and debt reduction. This evaluation informs decisions about property holdings and potential sales. Implementing these best practices enhances the efficiency and accuracy of your property management accounting processes.

Staying Updated on Lease Types

Stay informed about various lease types, especially triple net (NNN) leases common in commercial real estate. Understand responsibilities regarding common area expenses and ensure accurate billing to tenants.

Tracking Deductible Expenses

Monitor deductible expenses tied to property management, such as maintenance, repairs, and professional fees. Accurately recording these expenses maximizes tax deductions.

staying-updated-on-lease-types-and-tracking-deductible-expenses

Frequently Asked Questions

A key goal of property management accounting is to furnish property owners, investors, and stakeholders with precise and timely financial information. This data empowers them to make well-informed decisions regarding the profitability, performance, and growth prospects of their real estate investments.

Properties are considered assets. Despite the presence of a mortgage, which is a form of debt representing a liability, the home itself is regarded as an asset. Homes should be evaluated in two aspects: firstly, as the asset itself, primarily the equity within it, and secondly, the mortgage, which represents a liability.

Assets can be broadly classified as current (or short-term) assets, fixed assets, financial investments, and intangible assets.

A key goal of property management accounting is to furnish property owners, investors, and stakeholders with precise and timely financial information. This data empowers them to make well-informed decisions regarding the profitability, performance, and growth prospects of their real estate investments.

Properties are considered assets. Despite the presence of a mortgage, which is a form of debt representing a liability, the home itself is regarded as an asset. Homes should be evaluated in two aspects: firstly, as the asset itself, primarily the equity within it, and secondly, the mortgage, which represents a liability.

Assets can be broadly classified as current (or short-term) assets, fixed assets, financial investments, and intangible assets.

Conclusion

Effective accounting is the cornerstone of successful property management. This comprehensive guide has equipped property managers with essential techniques to navigate the intricacies of financial tracking. By emphasizing accuracy and strategic management, you can ensure the financial health of properties under their care. From mastering budgeting and reporting to understanding tax implications, this guide serves as a valuable resource for achieving sustainable success in property management. As the real estate era evolves, the insights gleaned from this guide will empower property managers to make informed decisions, foster positive tenant relationships, and ultimately thrive in a dynamic and competitive.
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March 8, 2024 by oscpatax_wpadmin in Blog

Accounting for Medical Practices: Everything You Must Know

Accounting for medical practices is more intricate and time-consuming than accounting for a regular small firm, which has its own challenges. In addition to keeping track of patient payments, your clinic may have to regularly contend with insurance companies, Medicare, and Medicaid to collect fees.

Use this blog for all the information you require on accounting for medical practices, regardless of how long you have been in the medical field or how recently you opened for business.
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Table of Contents

What Differentiates Accounting for Medical Practices?

Your lengthy medical school education did a great job educating you to help your patients. Regretfully, they also need to teach you how to run a business. Because of this, healthcare workers frequently lack the necessary skills to handle their organizations’ accounting and tax obligations.

Worse, the healthcare industry’s peculiarities lead to financial problems beyond most business owners. Healthcare billing procedures present the most accounting issues for medical practices. Most businesses offer their customers a service in exchange for steady payment.

Unfortunately, to offer their patients care, medical practices must arrange payment between the patients and their insurance companies. There are many more moving parts than in general, making it far more likely that something may go wrong.

For instance, medical coders make errors, patients do not pay their bills, and insurance companies deny claims. Consequently, medical practices must set up even more effective data tracking and organization systems.

what-differentiates-accounting-for-medical-practice

Importance of Medical Accounting

Every choice made in the medical field has the potential to affect patients’ health, and often does. This also applies to accounting for health care. Finding ways to improve a facility’s patient care plans’ financial efficiency without compromising the standard of care provided might frequently be the work at hand.

Therefore, a health care organization’s ultimate goal of offering affordable care that may improve patient outcomes depends heavily on the work of a health care accountant. Because of this factor, studying healthcare accounting is an exceptionally fulfilling area of accounting.

Decide on the Appropriate Accounting Technique

Medical firms might choose between accrual or cash-based accounting when it comes to accounting for physicians. Thanks to accrual accounting, healthcare accountants can now record expenses as bills arrive rather than after payments are made.

This procedure also applies to patient billing. Due to its challenges, accrual accounting is not widely used in medical practices, even though it often yields more accurate accounting than other approaches.

Compared to other accounting techniques, cash-based accounting is far more prevalent in medical practices.

You adopt this approach by recording expenses as soon as they are paid and receivables as soon as money is received. After all unpaid bills have been paid, a doctor will often get payment.

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Difference Between Cash Accounting & Accrual Basis Accounting

Cash Basis Accounting

Revenues and costs are only documented using this approach upon receipt or payment in cash. It’s easier to understand and provides a clear view of the practice’s cash position at all times.

Accrual Basis Accounting

whatever happens, when the money is actually collected or paid, this system records revenues and expenses as soon as they are earned or incurred. Over time, it offers a more realistic view of the practice’s financial situation.

Necessary Precise Tracking for Your Medical Practice

Whether you use accrual or cash-basis accounting, your medical practice accountant or medical CPA must monitor and record numerous things. You will be in charge of tracking more traditional goods that small businesses outside of the medical field also need to track, in addition to some items specific to the medical field.

Maintaining Paperwork and Records

Keeping up-to-date records and paperwork for your medical practice is essential to the success of your enterprise. Erroneous or missing paperwork and records might lead to delays and increase expenses.

You will be in charge of monitoring the following documents and records:

  • Basic data on the patient
  • Details of insurance
  • History of treatment
  • Consent documents

Though maintaining accurate records has always been difficult, things were considerably more complicated before computers were invented. Computer record digitalization has made challenging tasks easier to handle.

Invoicing and Compensation

While recordkeeping has benefited somewhat from digitization, medical billing remains more difficult. This industry is characterized by a high volume of moving parts and conflicting interests, which increases the likelihood of a claim being refused or encountering another obstacle.

A more serious problem discovered by an insurance company or the government-run Medicare program could cause a claim to be refused or something as straightforward as a typing error. In addition, medical clinics may have to deal with patients who do not pay their bills on time or at all.

Although there is no foolproof way to deal with these problems, setting up procedures for better data management and organization will help reduce the frequency of billing-related headaches.

Reports and Financial Statements

Your financial reports and statements reveal your medical practice’s financial situation. The cash flow, income, and balance sheets for your medical practice should all be checked regularly. You can stay up-to-date on important indications with the aid of these regular reviews, which comprise:

  • Cash flow
  • Receivables
  • Payables
  • Liabilities
  • Revenue
  • Expenses

Keeping an eye on the financial health of your medical practice enables you to make data-driven decisions and deal with little issues before they develop into larger systemic patterns. Regularly checking your patient’s physical condition is in their best interest, just as it is in yours to keep an eye on the health of your medical business.

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Controlling the Receivables

Effective management of your medical practice’s accounts receivable is crucial for maintaining a strong cash flow, a vital component of your company. With enough cash flow, you can cover your company bills and pay your staff.

Getting compensated for your services is always difficult, so you need a strong billing staff to help your medical business get paid more quickly. The most effective teams streamline ineffective billing procedures, reduce ineffective ones, and develop fresh concepts that improve your financial situation.

Forecasting and Budgeting

For your medical practice, forecasting and budgeting are essential components of your overall financial strategy. For instance, cash flow forecasting assists you in spotting financial shortages before they have a significant negative influence on your company. Recognizing cash flow problems enables you to save costs and pursue the collection of delinquent fees before they negatively impact business.

You need to track your expenses and forecast to determine whether your business is still profitable. Without them, you cannot manage your staff’s salaries or other fixed costs of running your medical practice, so you won’t know if you have adequate cash in hand.

Requirements for Compliance and Regulations

The regulatory obligations and compliance issues related to your patients’ data are another feature that makes medical practices distinct. Most likely, you are acquainted with the HIPAA stands for (Health Insurance Portability and Accountability Act). The federal statute known as HIPPA established nationwide guidelines to safeguard patient health information from being disclosed without the informed consent of the patient.

It is essential to guarantee the security of their data while adhering to constantly evolving compliance rules. You can be breaking these standards quickly if you’re not up to date on the latest best practices in your sector.

Simple Financial Management Tips

Here are a few quick recommendations to aid you with financial management. Focus on the most significant ones:

Maintain accurate records:  Keep a record of every transaction, including receipt of money and expenditures. Monitor all receipts, invoices, and bills related to each financial activity using a system.

Keep an eye on your costs: Organize and classify your expenses, such as rent, utilities, salaries, medical supplies, and taxes.

Hire a professional:To assure accuracy, manage your finances and taxes with a competent accountant.

Handle your cash flow: To stay on top of things, pay close attention to your accounts receivable and payable. Make sure you have adequate cash on hand to cover your expenses and settle your debts.

Streamline your medical billing: Adding a digital billing system would improve your accounting procedure. It can minimize mistakes by assisting you in electronically sending and receiving payments swiftly and securely.

Further, monitor your financial records and reconcile them regularly. This will provide you with reliable data and assist you in identifying and resolving the differences between your bank accounts and financial statements.

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common-challenges-of-medical-accounting

Common Challanges of Medical Accounting

Medical accounting poses a number of difficulties despite being essential to the smooth running of healthcare facilities. These difficulties result from the healthcare sector’s particularities, complicated regulations, and the requirement for accurate financial management. These are a few of the common difficulties:

Complex Billing and Coding Systems

Navigating the intricate billing and coding terrain demands a great deal of expertise. Employees in medical offices need ongoing training to be up to date on the most recent amendments and updates to the code. Furthermore, inaccurate coding can result in either overbilling or underbilling, which has serious financial and judicial consequences.

Resolutions:

Frequent training: Educate employees on the most recent billing and coding changes, such as ICD-10 and CPT codes.

Use of specialized software: Install software for coding and billing that is updated automatically with the most recent codes and laws.

Outsourcing: If internal resources are insufficient, consider outsourcing billing and coding to specialized businesses.

Compliance Towards Regulations

Because laws change frequently, compliance with healthcare rules is a changing target. This necessitates ongoing review and modification of accounting procedures. Heavy fines, legal battles, and reputational harm to the profession may arise from noncompliance.

Resolutions:

Remain educated: Through professional groups, legal advisories, and healthcare periodicals, stay updated on changes to healthcare rules.

Dedicated compliance officer: Assign responsibility for managing all compliance-related tasks to a compliance officer.

Dedicated compliance officer: To guarantee compliance with regulations, conduct internal audits on a regular basis.

Managing Accounts Receivable

It takes a delicate balance to manage the cash flow from accounts receivable effectively. Medical practices must devise swift payment strategies, including—but not limited to—providing several modes of payment, streamlining the billing process, and implementing efficient follow-up protocols for past-due accounts. Long-term receivables delays can greatly impact the practice’s cash flow and capacity to pay for overhead.

Resolutions:

Explicit payment guidelines: Clearly define and inform patients about your payment policies.

Effective mechanisms for billing: Make use of effective billing systems to send out invoices on time and chase down outstanding accounts.

Options for patient financing: To encourage on-time payments, provide patients with financing choices or flexible payment schedules.

Variable Insurance and Healthcare Policies

Practices need to be adaptable and quick to change because insurance and healthcare policies are always changing. This entails keeping up with policy changes, comprehending how they affect invoicing and reimbursement, and modifying accounting procedures as necessary.

Because insurance plans vary so much, it’s also important to fully comprehend the various coverage rules in order to guarantee appropriate invoicing.

Resolutions:

Adaptability and flexibility: Create a flexible strategy to respond swiftly to changes in policy.

Insurance liaison: Designate a staff member to communicate with insurance providers and update them on policy modifications and coverage.

Data Security and Technological Integration

While integrating innovative technological solutions, such as EHRs and accounting software, might simplify accounting procedures, it also raises issues with data security. It is essential to guarantee the integrity and confidentiality of sensitive patient financial data. Strong cybersecurity safeguards, frequent software updates, and data security procedure training for staff members are necessary.

Resolutions:

Safe systems: Invest in technological solutions that are secure and compliant with HIPAA.

Frequent instruction in data security: Teach employees the value of data security and best cybersecurity practices.

Plan for data backup and recovery: Put in place a reliable data backup and recovery process.

Owais Shamsi Founder of OS CPA Accounting Tax

Collaborate with CPA (Owais Shamsi)

Even before you include accounting for your medical practice, running your business requires a lot of effort and time. Due to the complexity of healthcare accounting, a lot of healthcare professionals entrust their accounting demands to OS CPA Accounting & Tax Consultant, the top virtual accounting expert in America for small businesses. We provide the solution you require at a cost that works for you, whether it’s small business taxes, bookkeeping for medical practices, business tax planning, or any other of our accounting services.

Frequently Asked Questions

There are two forms of accounting used in medical practice management: accrual and cash basis. The best strategy will usually be determined by the OS CPA Accounting & Tax Consultant after considering the demands of the enterprise.

The gathering and reporting of financial data pertaining to healthcare procedures is the main emphasis of healthcare accounting. Financial statements give you a clear picture of your spending patterns. They also enable you to make better judgments as a business owner.

Healthcare firms can accurately create financial statements that accurately reflect their performance and financial condition thanks to accrual accounting. These declarations are necessary for regulatory compliance, external reporting to stakeholders, and internal decision-making.

There are two forms of accounting used in medical practice management: accrual and cash basis. The best strategy will usually be determined by the OS CPA Accounting & Tax Consultant after considering the demands of the enterprise.

The gathering and reporting of financial data pertaining to healthcare procedures is the main emphasis of healthcare accounting. Financial statements give you a clear picture of your spending patterns. They also enable you to make better judgments as a business owner.

Healthcare firms can accurately create financial statements that accurately reflect their performance and financial condition thanks to accrual accounting. These declarations are necessary for regulatory compliance, external reporting to stakeholders, and internal decision-making.

Wrapping Up

Medical practice accounting is a complex and developing topic that is essential to the smooth running of healthcare institutions. Proficiency in this field facilitates the delivery of high-quality healthcare services and guarantees the financial viability of the medical profession. Medical accounting techniques and strategies must adapt to the changing healthcare environment, which calls for proactive and knowledgeable financial management.As an entrepreneur or small business owner, your decision to run your own company probably driven by the more than the joy of creating and analyzing financial statements. Fortunately, our certified publish accountant provides assistance in the efficient management of your books.

Set up a brief session to find out how we may help; these often last 30 minutes or less.

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