This week we are talking about the importance of Chart Accounts.
But let’s take a step back first.
As we all know there is nothing worse than being the one in the dark nodding along blindly.
What is a Chart of Account?
A Chart of Account is a list of income and expense items that allow your accountant to correctly manage your tax affairs.
Better than it sounds right?
To make matters interesting, Real Estate has a specific way of doing Chart of Accounts that is legislated via the ATO.
Not only is it important to ensure that it is done correctly for your Landlords, but also so any costs that you incur for running your rent roll, sit in Direct Costs.
What are Directs Costs?
Direct costs are expenses that are solely related to running your agency.
They are usually expenses for running your portfolio such as Trust Account Software, Photography, Online Advertising, Signage etc.
Each trust accounting software package will come with a standard set of Chart of Accounts.
The list doesn’t necessarily need to be long.
A common mistake most agencies make is over-complicating the income and expense items. This just makes it harder for the Accountant to decipher and more difficult for your client to understand.
Our Golden Rule
Just like our backing up golden rule, we have one for Chart of Accounts.
The ‘KIS’ rule – Keep it Simple.
Creating Clarity for your Owners
When it comes to the replacement of goods or major repairs, they need to be separated out for depreciation in accordance with ATO standards.
When upgrades are done to a rental property, they depreciate at a different rate.
For example, flooring depreciates at a different rate from a kitchen fit-out.
Your Accountant will identify this for the client and follow the ATO guidelines.
Capturing Agency Income
Most Trust Accounting packages integrate with general bookkeeping software. They will directly push across income and expenses, creating a correlation of the Chart of Accounts names in your Trust software with those in your General account software.
This is important to ensure that you’re covering costs for advertising and repairs associated with your Property Management and Sales.
Take it from one who knows
From Tracy’s 19 years of experience in bookkeeping, she can testify as to how many agencies do not cover their costs of advertising and marketing – causing them to go into liquidation.
Not somewhere you want to be.
Keeping accurate records helps to ensure you are covering your let fees and leasing fees along with determining the value of your rent roll for borrowing, or for future sale.
Tracy is our master of all things Chart of Accounts and linking to Xero. If you would like a review of your current Chart of Accounts and how to streamline, do not hesitate to get in contact with her to discuss.
Jane Morgan is the Director of End of Month Angels, a consultancy firm specialising in Trust Accounting. Jane knows the legislative requirements of running a successful Real Estate office through her 23 years’ industry experience. Don’t trust just anyone with your trust accounting. Book an appointment with an End of Month Angel today.