Accounting For Real Estate Rental
With the increasing daily necessities of an average person, his expenses are increasing day by day. To meet these expenses, one of the most preferred choices these days are ‘INVESTMENT’. Apart from the regular paid jobs and businesses, investment not only helps you earn extra benefits but also gives you a sense of financial security as a backup income. Among all this, the ‘Rental Estate Business’ is flourishing rapidly by proving to be a great revenue generator, as for both short term and long term basis.
What is ‘Real Estate Rental’?
Real Estate Business is basically giving on lease or putting on rent a property or part of property, mainly a single house, flat, apartment, duplexes etc., by any corporate professional or any organisation, in order to generate revenue. The main idea of these corporates is solely for investment purpose.
Why should one go for ‘Real Estate Rental Business’?
The owner of the property that is on rent, is subjected to regular Cash Flow, generating him income. Moreover, a property is a long-term appreciation asset. That means, the value of the space will keep on increasing.
It will also be beneficial at the time of tax payment. The disclosure of all the income and expenses occurred directly or indirectly, while purchasing and maintaining the property will grant tax leniency on the total income earned by the owner.
Charts of Accounts for Rental Business
The owner must show all the income and expenses incurred on the property on his books of accounts in order to evaluate true. But the question arises here is ‘HOW’? What will be the accounting treatment of the rent incurred on the property? Well, here’s the answer: We can either go for cash or accrual method of accounting to treat the rent and expenses incurred on the property.
In cash method, we will show the income and expense will there will be real cash involved while receiving or making payments. Whereas, in accrual method of accounting, we will treat the income and expenses when they are suppose to happen, and not when they actually happen I.e. mainly on their due dates.
The following accounts involve or treats the rental accounts:
- Residential Revenue
- Cost of sales expense
- Salaries and wages expense
- Occupancy expense
- Communication and Technology Expense
- Insurance expense
- Professional services expense
- Sales revenue
- Interest revenue
- Rent/Desk fees expense
Things of Consideration
While doing accounting for real estate rental purpose, the following points must be kept in mind:
- Revenue to tenant: Any expense that is paid by the tenant on the lease property is treated as income from the landlord side. For example, water or electricity bill, or any repair charges paid by the tenant. This income should be deducted from the rent of the tenant for the near upcoming due date for the payment.
- Collection of overdue: ‘Delinquent’ is the proper word for overdue or the situation when the debtor is late for payment. In real estate rental business, the situation of overdue is mainly ignored from the landlord’s side by constantly reminding the due date to the tenants. It breaks the monthly cash-flow and the landlord may start charging extra.
- Allocation of revenue to profit centres: The revenue earned by the rent paid by the landlords are additional income to the corporate or the organisation. This income must be allocated precisely so that it yields more and more revenue in the favour of the landlord.