You may modify Intuit’s QuickBooks accounting program to help you keep track of your tenants’ rent payments. The accounts receivable ledger in QuickBooks does not include a built-in property management feature, so you must add your rental properties as clients. Then, labor can be delegated to each tenant who rents a space in the building.
How to Categorize Rental Income in Quickbooks Online
Select “New Customer/Job” from the “Customer Center” after it is open. To access the customer input screen, select “New Customer.” As the contact details for the consumer, enter the name and address of the property. Include other pertinent information about the property in the custom data fields, such as the terms of payment, preferred method of payment, and reserve reserved for repairs. To save your new customer and dismiss the window, click “OK.” If you need to set up other properties, click “Next.”
To set up the specific tenants for each property, choose “New Job” from the “New Customer/Job” option. Enter the tenant’s contact information, including name, phone number, and mailing address. Use the tenant’s contact information rather than the address of the rental property itself; QuickBooks will use this information to create your monthly rental bills. If you’re done adding new tenants, click “OK,” otherwise click “Next” to add more.
To start inputting your rent receipts, select “Receive Payments” from the “Customers” option. From the drop-down menu under “Accounts,” select the cash receipt account. The “Customer:Job” drop-down list should allow you to select the right tenant. Enter the monthly rent payment amount. If you are entering rent for just one tenant, click “OK” to keep the receipt. Select “Group with other undeposited money” to proceed to the next cash receipt entry if you have rent from multiple tenants.
Why is recording rental income in QuickBooks so complicated?
Although receiving and depositing rent should be very simple in QuickBooks, recording rental income shouldn’t be too difficult.
It can be challenging to set up a rental property in QuickBooks, which is possibly why the organization offers a Live Bookkeeping professional to assist with the setup for $50 for a single session in addition to tailored bookkeeping support for a surcharge.
To ensure that accounts are first set up properly, it might be worthwhile to pay a little bit more than the standard QuickBooks price. At this stage of the game, utilizing QuickBooks incorrectly could result in inaccurate financial reports, errors on a tax return, or falsely accusing a tenant of paying their rent late.
Because it wasn’t designed for the real estate sector, QuickBooks might be challenging to use for rental property.
The universal accounting program QuickBooks aspires to be all things to all users. ZDNet reported that in 2019, QuickBooks Online had 3.2 million U.S. members and 1.3 million subscribers abroad. Although the organization doesn’t specify the proportion of subscribers who own rental properties, many of them run small businesses and are independent contractors.
Some property owners are migrating to the free Stessa software, which was created by real estate investors, for real estate investors, because QuickBooks can be difficult to use for rental property firms.
How to Classify Rent Income on the General Ledger
Rental income is the cash a company receives from leasing property or another kind of asset within a given accounting period. A record of accounting known as the general ledger is arranged by account, such as cash or rental income. Depending on when your small business collects rent from your renter, you should classify rental income in the general ledger under a certain type of account. These examples should assist you understand received rent and which type of account it belongs in if you’re unclear.
Upfront Payment vs. Delayed Payment
According to Entrepreneur, a company must record income in the period in which it is earned regardless of when payment is received. The rent is not yet considered income when it is paid in full; you only need to declare the income once it has been earned. If a tenant is occupying your property at the end of an accounting period but you have not yet received rent, you must record the rent income nonetheless to allocate it to the appropriate period. Here are some examples of debit and credit.
Recording an Upfront Payment
Record a debit to the cash account for the amount received and a credit to the unearned rent account for the same amount to record an upfront rent payment in the general ledger. Cash is an asset, and the debit increases it. According to Accounting Tools, the credit raises unearned rent, which is a liability or something you owe. Assume, for illustration, that your tenant will pay your small business $2,000 in rent on February 1st. Add $2,000 to the unearned rent account and debit $2,000 from the cash account.
Income Earned From Upfront Payment
You must record the portion of the advance payment that you received as rental income in your general ledger at the end of each month. Create a debit for one month’s worth of rent in the unearned rent account and a credit for that same amount in the rent income account. Unearned rent is reduced by the debt. Rent revenue is increased by the credit. Debit $2,000 for unearned rent and credit $2,000 for rental income at the end of the month using the example from earlier.
Earning Rent Before Collecting Payment
Rent income earned but to be collected later should be recorded by debiting the percentage earned from the rent receivable account and crediting the rent income account with the equal amount. The debit grows the account for receivables, an asset that represents the money your tenant owes you. Assume, for illustration, that a tenant pays your small business $4,000 for the previous month’s rent on the fifth of every month. In your general ledger, debit $4,000 for rent receivable and credit $4,000 for rent income at the end of the month.
Collecting Rent Already Earned
Debit the cash account for the amount received in rent payments that have already been recorded as income, and credit the rent receivables account for the same amount. The tenant’s rent obligation is reduced by the credit to reflect this. To properly record the receipt of rent in the journal, debit $4,000 from cash and credit $4,000 from rent receivable on the fifth day of the month.
Rent Expense in Accounting
Rent expense is the price a company pays to use a building or site as a factory, warehouse, office, or retail space. Instead of being a variable expense, rent expense is a form of fixed operational cost or absorption cost for a corporation. A one- or two-year contract between the lessor and lessee that includes the option of renewal often governs rental costs.
Rent costs might make up a significant or insignificant amount of operational expenses, depending on the sort of business. Along with employee salaries and marketing and advertising expenses, rent is one of the major operational expenses for retail firms that do not own their own property.
As a percentage of total expenses, rent is often a small expense for manufacturing enterprises. Rent costs for manufacturing operations are included in factory overhead, but rent that is unrelated to production, such as office space rent for the administration, is billed to operating costs. In real estate, location is frequently the most crucial element in determining rent.
Many businesses are reevaluating how much they spend on commercial real estate rentals as e-commerce becomes more and more prevalent. Some businesses are lowering the number of physical stores they run in order to concentrate more of their operations online. In order to meet consumer demand, merchants who use the “click and mortar” business model integrate their online and offline activities by opening physical stores and websites.
The need for office space is changing as a result of technological improvements as businesses become aware of the possibility of hiring employees remotely from their homes. The company will obviously gain from a decrease in property rent costs, but many employees claim they prefer the flexibility of working from home.
Retailers’ property rent costs might change based on a number of variables, including the status of the economy. For instance, Kay Jewelers, Zales, and Jared are just a few of the national chains of stores run by Signet Jewelers Limited (SIG). Some of the operating leases the company has are subject to fixed rent increases, the company revealed in a note to its financial statements in the 10-K filing in 2017. Over the course of the lease, including any construction or other rental vacations, the increases are charged to the income statement on a straight-line basis.
Taxes, common area maintenance, and contingent rentals are charged to the income statement when they are incurred. Minimum rent is segregated from contingent rentals (amounts based on a percentage of sales beyond a predetermined level) until the business can decide when it is likely that the expense has been incurred and the amount is calculably estimable. In its fiscal year 2017, Signet incurred $524 million in minimum rent costs and $10 million in contingent rent costs, totaling about 28% of all operating costs.
Although Signet had to temporarily close all of its brick-and-mortar locations around the world owing to the financial impact of the crisis, the business stated in June 2020 that it would start to dramatically cut its property leasing expenses. By May 2021, same-store North American sales had risen 117.2% over the year before, while sales in the international division had decreased by 12.2%. The fact that e-commerce revenues rose by 113.4% during the same time period was another plus for the business.
In fiscal year 2022, the firm said it would permanently close more than 100 stores, many of which were located in malls, as part of their reorganization strategy, although it would also add 100 kiosks. The business will further up its efforts in digital jewelry purchasing and keep interacting with customers remotely via video technology for in-home shopping consultations.
Chart of Accounts for Rental Property
Because they are necessary for creating a financial budget, charts of accounts and bookkeeping are crucial for real estate businesses. Additionally, complicated processes are used in the real estate industry for everything from purchasing and selling to property maintenance. Therefore, it’s crucial to maintain track of financial transactions. We’ll go over a real estate chart of accounts and bookkeeping techniques in this article.
Real estate agents can protect their financial security and keep organized for important tax compliance and collection chores by using a well-prepared chart of accounts. You may organize and streamline your company’s complex financial data with the real estate chart of accounts. Organizing data into comprehensible, logical account categories is beneficial. It also helps create financial models for real estate.
A real estate company’s chart of accounts shows all the accounts for your company organized in one place. It provides you with a bird’s-eye perspective of all of your company’s financial transactions. Due to the unique nature of the business and separate accounts, the real estate chart of accounts will be different from that of other firms.
You can use a chart of accounts to group all of your business’s transactions throughout a specific period of time. By dividing your revenue, liabilities, assets, equity, and business expenses, it also enables you to gain insight into the effectiveness of various parts of your organization. The chart of accounts also assists in financial budgeting and planning by listing all the accounts involved in your company’s daily operations.
The account names, brief descriptions, and unique account identification codes are all provided in the chart of accounts. The accounts for the income statement are listed after the accounts for the balance sheet.
Assets, liabilities, and shareholders’ equity make up the balance sheet accounts, which are further divided into numerous subcategories. Revenues and expenses are broken down further into sub-categories in the accounts that make up the income statement.
Setting Up the Chart of Accounts
The accounts that are specified while creating a chart of accounts largely depend on the type of business being run. For instance, a taxi company will have some accounts that are unique to the industry in addition to the generic accounts that apply to all companies. For instance, the taxi company will include a fuel expense account, which is not typical for businesses, but will omit an inventory account because it is a service company and does not keep stock.
Normally, a numerical system should be used to easily identify the accounts when listing them in the chart of accounts. Additionally, numbering makes it simple to record a transaction. Large firms typically use four-digit numbers because they have room for more digits as their operations expand, whereas small enterprises typically use three-digit numbers.
Each of the five major categories is given a set of numbers, with blank spaces at the end to accommodate future additions of more accounts. Additionally, the numbering needs to be uniform to make it simpler for management to roll up data from one period to the next.
Categories on the Chart of Accounts
Each of the accounts in the chart of accounts corresponds to the two main financial statements, i.e., the balance sheet and income statement.
Balance sheet accounts
Such accounts are required when creating a balance sheet for the business. Balance sheet accounts comprise the following:
1. Asset accounts
The asset account provides a list of all the categories of assets that the business owns. The account may include intangible assets (such as trademarks, patents, and software), current assets (such as cash on hand, accounts receivable, and
Each asset account can be numbered in a sequence such as 1000, 1020, 1040, 1060, etc. The numbering follows the traditional format of the balance sheet by starting with the current assets, followed by the fixed assets.
2. Liability accounts
Liability accounts provide a list of categories for all the debts that the business owes its creditors. Typically, liability accounts will include the word “payable” in their name and may include accounts payable, invoices payable, salaries payable, interest payable, etc.
Liability accounts also follow the traditional balance sheet format by starting with the current liabilities, followed by long-term liabilities. The number system for each liability account can start from 2000 and use a sequence that is easy to follow and compare in different accounting periods.
3. Owner’s equity accounts
Equity represents the value that is left in the business after deducting all the liabilities from the assets. Owner’s equity measures how valuable the company is to the shareholders of the company.
Some of the components of the owner’s equity accounts include common stock, preferred stock, and retained earnings. The numbering system of the owner’s equity account for a large company can continue from the liability accounts and start from 3000 to 3999.
To keep track of your rent and make sure you’re paying your rent on time, recording rent income in Quickbooks Online can be very helpful. Tracking your development and modifying your budget as necessary can also be beneficial. Follow these instructions carefully to record your rent income in Quickbooks Online so that you may appropriately report your earnings. You can keep accurate records and increase your company’s productivity by following these easy steps.