Property management requires meticulous financial tracking. Understanding accrual accounting is essential for making data-driven business decisions. But what exactly does it mean, and why is it important for property managers?
We at NorthStar Bookkeeping specialize in property management accounting and understand the intricacies of accrual methods. Let’s break down accrual accounting and explore its specific benefits for your property management business.
What Is Accrual Accounting in Real Estate?
Accrual accounting in property management means recording income when it’s earned and expenses when they’re incurred – regardless of when cash actually changes hands. For example, if a tenant is obligated to pay rent on the 1st, you record that income on the 1st, even if their payment is delayed.
This method provides a more accurate picture of your business’s financial health at any given time. It prevents distortions caused by the timing of payments, giving you a true understanding of your profitability over fixed periods.
Can a Rental Property Be on an Accrual Basis?
Yes, absolutely! In fact, accrual accounting is often the preferred choice for property management companies of all sizes. It’s especially important if you manage multiple properties, as it provides essential clarity into income streams and expenses across your portfolio.
Accrual accounting also aligns with tax reporting requirements for larger businesses. Even if not mandated, the financial insights it provides are crucial for smart growth strategies.
Related Article: What is Property Management Accounting?
What Is the Difference Between Cash and Accrual Accounting in Property Management?
The main difference between cash and accrual accounting in property management lies in the timing of when transactions are recorded. Cash basis accounting records transactions when cash changes hands, which can provide a somewhat skewed view of a company’s financial health if significant revenues or expenses are pending. Accrual accounting, on the other hand, records transactions when they are earned or incurred, offering a more accurate financial picture that is especially useful for planning and analysis in property management.
- Cash Basis: Income is recorded when received, and expenses are recorded when paid. While seemingly simple, this method can be misleading, especially with fluctuating property income or seasonal expenses.
- Accrual Basis: Income and expenses are recorded when the obligation arises. This offers a real-time view of your company’s profitability, allowing for proactive adjustments and informed decision-making.
Outsource Your Property Management Bookkeeping With NorthStar Bookkeeping
Accrual accounting provides a clearer path to informed financial decisions for your property management company. However, managing it effectively requires time and expertise. By outsourcing bookkeeping tasks to a trusted partner like NorthStar, you gain both, along with benefits like:
- Accurate Financial Pictures: We meticulously track income and expenses on an accrual basis, providing you with real-time financial insights and ensuring tax compliance.
- Time Savings: We handle your bookkeeping, freeing up valuable time to focus on managing properties and growing your business.
- Tax-Time Ease: Accrual records streamline tax preparation and help identify potential deductions, saving you money and minimizing stress.
NorthStar Bookkeeping’s meticulous bookkeeping gives you the insights and peace of mind to make proactive, profit-driving decisions. Contact us to schedule a consultation to discover how accrual accounting can transform your financial visibility and support your business goals.