Efficient bookkeeping for realtors is essential due to the dynamic nature of real estate agencies, which rely on frequent sales and commissions. Bookkeeping for realtors is a demanding task that requires consistent effort in keeping data up to date.
A real estate bookkeeper should also take care of essential accounting processes such as profit and loss management, tax return filing, and more.
Due to the complexity of the bookkeeping process for the real estate industry, there are several factors that need to be considered for efficient bookkeeping practices for real estate bookkeeping, which are explained below.
Tracking all expenses and income:
Accurate tracking of income and expenses is crucial in real estate bookkeeping. All expenditures should be recorded and any transactions done on the day should be recorded properly for proper calculation of taxes. It is also essential that the different expenses and income are categorized into different categories such as Assets, Liability, Equity, Revenue, and Cost of goods sold for effective financial management. Also, IRS requires the categorization of all expenses in tax forms. Services that might require management by real estate realtors, such as maintenance of common areas, should be effectively planned to be covered in the financial statements.
Separation of classes:
A practical approach in real estate bookkeeping is to handle each property class separately, especially when dealing with rentals. This method aids in maintaining records efficiently. By creating different classes or categories for expenses and income, such as rentals, it becomes easier to track and manage them effectively. Within the assets category, it is advisable to create a subcategory specifically for capital expenditures, ensuring all significant capital expenses are properly accounted for. Loan amounts can be complex, so it is crucial to categorize and account for them accurately.
Payroll calculation:
The payroll of employees is most often partially fixed and partially based on commissions. The commissions can vary for different kinds of properties. Therefore every month there will be a change in the final payment. Therefore it is necessary to take care of the details and generate payroll properly.
Regular verification and Creating financial statements:
It is necessary to regularly verify the income and expenses to make sure they are proper. This helps to understand the flow of cash. Financial statements need to be produced every month. Also, the key performance metrics such as Net Operating Income(NOI), Capitalization rate, Cash-on-cash return, etc., should be analyzed.
Bank Reconciliation Statement and Trust Account:
A Bank reconciliation Statement is necessary for comparing the bank account and the account of the business, and determining whether they match. This crucial task falls within the responsibility of bookkeepers. Managing the Trust Account properly and making sure it adheres to all the legal terms and conditions is necessary.
Conclusion:
The proper maintenance of financial records is required to understand cash flow and the performance of rental properties, and to determine the next steps. The accounts might also be subjected to verification by the IRS. Therefore, to ensure proper maintenance of records, it is important to choose a reliable bookkeeper who ensures compliance, minimizes errors, and maintains reliable records for future reference and potential audits.
At 904bookkeeping, we offer trusted bookkeeping services with Quickbooks, for small businesses and mid-sized companies with experience of over a decade. We have a team of certified professionals who can handle the complexity of real estate transactions efficiently and provide accurate financial documentation. Contact us at 702-210-2699 for professional bookkeeping for your real estate business.
