Real Estate Accounting – An Overview
Real estate accounting is the backbone of the real estate industry. Real estate entities need to fully understand their current financial accounting, regulatory and compliance reporting requirements. This level of awareness helps in reducing the inherent risks of various transactions as well as their overall business operations. It also enables these entities to be in full compliance with the relevant standards of reporting to provide appropriate levels of transparency expected by their key stakeholders.
A well-managed real estate accounting is vital for you when you are running a real estate firm/company, or you are a real estate agent. A common expression says, “Numbers do not lie” based on the assumption that the numbers are accurate.
However, accounting mistakes can result in inaccurate numbers that result in quite opposite of the idiom turning the numbers to be lying.
Let’s have a look at some of these mistakes:-
Top Accounting Mistakes in Real Estate Industry –
To ensure that your books are in order regarding property accounting here are some of the ways one should know about top five accounting mistakes in real estate industry.
1. Providing Funds before a Transaction Closes
Disbursing escrow/trust deposits to any party involved in real estate transaction before it is officially closed is a big accounting mistake. By paying or providing such funds before the closing of the transaction may result in your brokerage is not complying with the accounting rules of your governing bodies.
2. Lack of Adequate Backup
It is a big mistake not to back up the accounting data generated or maintaining the scanned copies of the accounting receipts concerned with property management accounting. It is necessary for this age of IT generated business-environment to back up core accounting data online/on the cloud as well those in paper modes.
3. Not Reconciling Banking Records with Proper Monthly Records
Bank reconciliation forms an important accounting part of real estate industry. Therefore, not reconciling banking records with proper monthly records will result in potential qualified (bad) audit report.
4. Skimp on Software Training
Property management accounting or property accounting involves complicated accounting procedures so when you get a new software you and your staff will benefit from software training to understand the various accounting techniques. Software upgrades in real estate accounting is a continuous affair and therefore skimping software training is another accounting mistake.
5. Improper Classification of Expenses
As a real estate agent or firm one should have proper control over the finer nuances of tax exemptions on expenses. As such, clubbing wrong items together or making no proper classification of expenses will result in an imprecise measurement of profitability. Different expenses attract specific taxes and therefore as a real estate agent or firm you can save tax or arrive at a precise measure of profitability in case of proper classification of assets.
By avoiding these five accounting mistakes, your firm can get back to what you do best in expanding your real estate business.