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Using QuickBooks Online for Property
Management Accounting
 Where different
entities are involved in the management of properties, an effective
solution for the accounting of those properties is the use of
QuickBooks Online. Often property management companies have a
multitude of properties owned by different investment groups as well as
a number of subcontractors or employees in diverse locations. The
centralization of the accounting and information system online for
ready access to all involved parties assists in the recording of
transactions and the availability of needed reports.Of course, separate companies can be set up in QuickBooks for the different owners of the properties. In addition, for each separate company, different classes can be used in QuickBooks to keep track of the separate reporting of the different apartments owned by each client. This is especially useful when the apartments are in different locations, since the Internal Revenue Service requires a decomposition of income and expenses by location on Schedule E for individuals and sole member limited liability companies and on Form 8825 for a partnership and S corporation. By breaking out and recording all rental income and expenses by properties in QuickBooks, you will save hundreds, if not thousands, of dollars in tax preparation fees at the end of the year by not requiring your outside certified public accountant to reconstruct this allocation at year-end. Another alternative to using classes is to identify all “tenants” by apartment or unit number. This way classes do not need to be used. This may prove to be a real time saver for data entry since classes would not need to be employed, saving a step in data entry for countless invoices. Then individual tenants could be set up as a “sub-tenant” in QuickBooks, allowing the direct billing to this tenant and appropriate follow up and reporting. If the tenant leaves or is evicted during the year, another sub-tenant can be created for the apartment previously set up as the “tenant”, which is technically referred to in QuickBooks Online as the “parent” tenant. At year-end, revenue and expense reports can be printed by tenant facilitating the preparation of tax returns while simultaneously maintaining the segregation of billing information for the different occupants of that same apartment. What’s also nice about this alternative of tracking tenants is that some bookkeepers find it easier and more accurate to post information to apartments rather than to individuals, since many names are similar and since many apartments have more than one occupant, often creating misallocations of rental receipts. In addition, another time saver might be to simply enter bills by location rather than individual tenants. Under Preferences, you can turn this feature on or off. Tax returns require only reporting by location, not by individual tenants. For example, if you own several multi-family homes, you need not track all expenses by tenant but simply by location or the address of the home. Turn off the “Expense and product/service tracking by tenant” feature in Preferences under Vendors & Purchases by simply unchecking its box. Another great time saver in conjunction with using QuickBooks Online is using Online Banking. With Online Banking, you can download your unrecorded transactions directly from the bank and post them into QuickBooks with a few clicks. Of course, you can pay bills directly via QuickBooks Online with Online Banking, too, if your bank allows this feature. Virtually all of your larger banks do. Online Banking is a snap to set up with QuickBooks Online. Simply go to “Banking”, “Online Banking Center”, find your bank listed in the financial institution directory, and follow the recommended steps for your bank. It is important to segregate repairs and maintenance from capital improvements for financial and tax reporting. Consequently, it is imperative to set up a separate fixed asset account for each building in QuickBooks Online to track improvements in order to track them as well as to facilitate the calculation and recording of depreciation expense. Of course, at least two subaccounts can be set up for each individual property, one for the original purchase and the other for any improvements, and then combined for financial reporting purposes under a parent account. Classes or, as explained above, tenants may be used to track the repair and maintenance expenses of the properties. It is also recommended that a third subaccount, accumulated depreciation, be set up in QuickBooks Online for each property in order to track its adjusted basis. The “Tenant Balance Detail” report is always a critical report for property managers using QuickBooks Online. However, for this report to be current and meaningful, balances of former tenants need to be removed periodically and reclassified elsewhere. If they are deemed uncollectible, then they should be reclassified as an uncollectible expense; if collection efforts will be pursued, they should either be left in the tenant receivables account or reclassified to another receivable account with a title such as Former Tenant Receivables, etc. To remove a tenant from tenant receivables, simply select the tenant in the Tenant Center, select “Edit”, and then check “Delete”. If there is a remaining balance, QuickBooks Online displays a dialog informing you of such and that it will prepare an adjusting entry to remove the balance, debiting the associated revenue account using the current date. An adjusting journal entry can be prepared before or after deletion, reclassifying the QuickBooks Online credit memo adjustment to an uncollectible expense account to reflect this expense of doing business as well as to facilitate appropriate follow up on the part of management. If you discover later that you should not have deleted a particular tenant, no problem: simply go to Tenants, Tenant List, select Related Reports, Deleted Tenants, find the tenant deleted in error, select that tenant, click on Edit Information, scroll down to Deleted, uncheck the box, and save it. All of the detail of the tenant reappears in QuickBooks Online as it appeared prior to deletion. QuickBooks Online may be the accounting software solution for your property management business, especially if you have a number of different individuals or companies involved in its operation. Because it is accessible on the internet to all permitted users wherever they may be located, receipts and deposits can be entered by the individual handling collections; bills, invoices, and statements can entered or prepared by the bookkeeper when received or required; purchase orders can be prepared and entered by the superintendent when needed; and profit and loss reports can be viewed at will by owners. Although QuickBooks Online may not offer all of the features of the desktop versions, it offers enough robustness for most property management companies and may obviate the need of additional branch offices for property owners and managers by offering remote access to the properties’ financial records. This article is provided for informational purposes and is not intended to be construed as legal, accounting, or other professional advice. For further information, please consult appropriate professional advice from your attorney and certified public accountant. Have a tax or an accounting question? Please feel free to submit it to William Brighenti, Certified Public Accountant, Hartford CPA Accountants. For information and assistance on any tax and accounting issue, please visit our website: Accountants CPA Hartford. If and only to the extent that this publication contains contributions from tax professionals who are subject to the rules of professional conduct set forth in Circular 230, as promulgated by the United States Department of the Treasury, the publisher, on behalf of those contributors, hereby states that any U.S. federal tax advice that is contained in such contributions was not intended or written to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any taxpayer for such purpose. The above tax advice was written to support the promotion or marketing of the accounting practice of the publisher and any transaction described herein. The taxpayer recipients of this offering memorandum should seek tax advice based on their particular circumstances from an independent tax advisor. |
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