Set up the Accounting Companies

Fundamentals

The first point to understand is the need to setup a minimum of 2 unique accounting entities or Accounting Companies. The first company will is a trust account. This means that the money in the bank account is actually owned by many different people or companies. So you require a system to track each dollar and cent to which person or company actually owns it.

The 2nd account is your personal company account. It is where you deposit any money that you earned from managing the properties within the trust. You would use this company to pay expenses incurred by the company and not chargeable to the managed properties.

Setting it up

ManageUDA supports both Accrual Accounting and Cash Accounting. One of the normal agreements 3rd party managers make with their clients is if the tenant does not pay, the manager will not take the full cut (although some minimum amounts may be charged). One of the drawbacks of using Accrual Accounting in this situation is that the money is deemed earned as soon as it is charged. This can be problematic where a tenant is defaulting and the accounting system would be processing payment to the client/owner for money not yet collected. For this reason we recommend using cash accounting for the trust account. The tenant's rent is not deemed earned until it is actually in your hand! The rest of the cycle can continue because the funds are there to process.

The 2nd account can be run in accrual accounting as it will essentially be running your business and all its transactions.

Note

When using cash accounting, you will need to pay attention to match the expenses to the correct monthly reporting cycle to prevent applying too many expenses to one cycle and fewer to another. Although over time everything evens out, ignoring this can skew your cash flow and can put a strain on your business in the short term.

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