Rent Collection/Disbursement Accounting

Greetings everyone!

So we have just started out on a real estate agency business. We manage properties on behalf of landlords, including collecting rent and rent deposits. In turn, we receive a percentage commission that we deduct automatically at the end of the month from what we have collected, then send the balance to the respective landlords.

What am wondering is;

  1. How do we pay ourselves in manager? Do we raise an invoice to the landlord then receive a payment into an income account? Or do we simply do a journal entry to an income account? Or perhaps do an inter-account transfer?

  2. How do we pay the landlords, or transfer what we have collected on their behalf to them? Do we simply make a payment? If we do, will not the P&L statement and the BS show negative figures because what we pay is larger than what we receive?

  3. Do any of you have a better way to structure such a business in manager?

Thank you in advance for your kind assistance.

  1. I think that you should issue an invoice to the landlord (client) and then compensate it.
  2. You should receive an invoice from the landlord (supplier)

However it depends so much on your local laws and how the contract was written, in particular relating to VAT.

A situation like this can be complex. Factors to consider include:

  • Who are the rent receipts from the tenants payable to? For example, if received by cheque, who is the cheque made out to?
  • Are the receipts cheques or physical cash?
  • What bank account are rents deposited into and who owns those accounts?
  • Are gross rents subject to VAT or sales tax? If so, whose tax account is used?
  • Are your commissions subject to VAT or sales tax?
  • How is maintenance covered? Does your company provide it? If so, how are you reimbursed? Does your reimbursement come from rents, or do you invoice separately?

As @Davide said, so much depends on local law. I strongly recommend you consult a local accountant and possibly an attorney. Spending some money to be sure your procedures are set up correctly will avoid a great deal of trouble later when you need to file tax returns, etc. Whatever the local situation and your business structure requires, Manager will be able to handle. Very likely, you will want to employ special accounts for the various properties.

Thank you @Davide and @Tut for your prompt responses. Let me answer the above:

  1. The rent receipts from the tenants are payable to our company directly.
  2. The receipts are direct bank deposits and a few mobile money transfers.
  3. The rents are deposited into our company’s bank accounts which the company owns.
  4. The net rent we send to the landlords is taxable on their side as “rental income.”
  5. The balance, which is our commissioned earned, is taxable on our side as “income tax.”
  6. We currently do not have VAT obligation. The only tax item is income tax.
  7. Maintenance for the properties is recovered from the collected rent deposits accordingly.

I hope with this information you can get some perspective. Basically, I need manager to do the following:

  1. Receive money from tenants
  2. Pay the Landlords
  3. Pay ourselves

Thank you again for your kind input.

My original advice stands: consult a qualified local accountant about the need for escrow bank accounts, operating bank accounts, and design of an appropriate chart of accounts.

Read the Guides about special accounts and custom control accounts to inform your thinking about how to design your chart of accounts. When you have specific question, come back to the forum. So far, what you have basically asked is, “How do I perform accounting for my business?” That is too broad for the forum, which is meant to answer questions about how to use Manager to perform necessary accounting tasks. Until you know what you want to accomplish, trying to use the tool is not going to lead anywhere productive.

I can promise you, a good accountant will advise you of things you never thought of. While there is no reason someone in business cannot learn to be their own bookkeeper, thinking you can start a business without competent accounting and legal advice is almost always a fool’s errand that ends up costing more in the long run.

Thank you @Tut for your response. I will get back to this thread with more specific information once I get direction from an accountant.

So you are asking “how to use Manager to perform” rent collection and disbursement accounting tasks.

Generally, tenants pay their rent on an obligation basis, that is they are not invoiced for the rent.
Rent received should be deposited into a “Trust” bank account, not your business bank account, as the rent received are being held “on trust” for the landlord. In fact, I would setup the Trust as a separate Manager business from the agency Business

The individual properties can be accounted for separately by using the Special Accounts tab.
Any direct expenses (repairs) are paid from the Trust bank account via the Special Accounts.
Payments to the landlord, which will be the month end balance of the property account less any commission, will be via a Recipient Created Invoice, that is, you create the landlords invoice on their behalf.

The commission deducted from the landlord’s payment is allocated to a liability account within the Trust business, and then separately paid to the Agency business.

All other considerations, such as taxes etc, are handled as per standard local practices.

@Brucanna this has worked perfectly for me, many thanks to you. However, in my country, real estate companies are not obligated to work as a trust fund, though they do collect cash on behalf of landlords. Instead, they are regulated by being accredited through a government portal, whose vetting process ensures the safety of the funds.