Below is the most complete guide to crafting a property management chart of accounts you’ll ever need.
Never created a chart of accounts?
We’ll take you through it step-by-step.
Created one before, but never for property management/rentals?
We’ll offer specific tips and examples, including a sample chart of accounts for a property management company.
Looking for something specific? Use the table of contents to jump to the information you need quickly (go on – click away!).
Or, you can take the shortcut and download our free chart of accounts template, but we still recommend reading this entire guide to understand how to use it and give you more ideas.
With that said, let’s start from the beginning: what exactly is a chart of accounts and why is having one important?
What is a chart of accounts?
A chart of accounts is a list (i.e. chart) of all the different financial accounts that your business uses.
This list is all-inclusive, meaning it includes every type of financial account, including:
- Tracking expenses
- Transactions of every kind
The best way to think of a chart of accounts is as a digital filing cabinet.
Imagine every financial action your business takes (or that affects your business) as a document, and each of those documents fits neatly into a particular folder.
Now, you’ve got the idea.
Your chart of accounts isn’t just important for filing away financial information, though.
It’s the database you’ll pull from to craft important reports like your balance sheet, which helps you:
- Assess your business health
- Forecast its future performance
- And provide information to your banker and accountant
Your chart of accounts serves as part of the foundation of a sound business structure, so it’s worth investing the time (or professional help) in crafting one which does the job you need it to do.
How does a chart of accounts work?
So then, how does it work?
It can get complex, but when you break it down into steps, a chart of accounts for property management is pretty straightforward.
A chart of accounts organizes 5 major types of financial information:
- Assets: This includes the properties, most notably, and financial accounts.
- Liabilities: Primarily debt such as mortgages on those properties.
- Equity: Money you’ve invested in the business.
- Revenues: The money the business brings in from things such as rent, parking and other tenant fees, etc.
- Expenses: The money the business spends to manage itself, such as repair costs.
From there, you then break those primary accounts into sub-accounts. We’ll go over some specific examples in the next section.
Once you have that in place, every transaction that passes in or out of the business is recorded on that chart of accounts, be it a property sale, rent payments, or service cost.
That not only makes everything way more transparent for you or your clients but easier for you to manage financial activity in virtually every way.
How to set up your property management chart of accounts
There is no standard structure for a chart of accounts, including one for managing property (be it rental property or other).
There are, however, suggested structures that you can use as a kind of template.
A starting point, if you will.
(More like an easy button– check out the template later in this guide.)
If you’re managing a rental property, a good place to start for a suggested chart of accounts is IRS Schedule E (Form 1040):
Since you likely file that already, you’ll be familiar enough with it to understand how your current accounts break down into those major categories.
Our template below uses that form as a basis to make it as easy as possible to craft your chart of accounts.
The below isn’t just a rental property chart of accounts, though. You can use it for any kind of property management.
What about using a QuickBooks chart of accounts template?
Keep in mind that QuickBooks does have a generic chart of accounts template you can use.
However, because they’re not designed specifically for property management, they typically need more modifications than the work you’d need to just make your own with a property management-specific template (like the one below).
So, it’s not generally advisable to use one of QB’s templates.
Below, we’ll take you step-by-step through crafting a chart of accounts designed for managing a property.
Let’s start with step 1: establishing your number system.
1. Decide on your overarching number system
The first step in setting up a chart of accounts is deciding on your number system.
Typically, that’s done with something called “block numbering”.
That simply refers to the practice of “blocking” out or reserving large sequences of numbers for future use in accounting.
The basic idea is that, as a business grows, its number of accounts tends to grow in tandem.
Right now, you might have 20 asset-related accounts. But, over time, that number will grow to 30, 40, etc.
If you select numbers 1-20 as your asset accounts and 21-40 as your liability accounts, 41-60 equity, 61-80 revenue, and 81-100 expenses... what happens when you get your 21st asset?
It would have to become account number 101, which would just be downright confusing.
Instead, do it like this using blocks of 1,000:
That way, you have more than enough space for new accounts.
Doing it this way doesn’t just keep your chart of accounts from becoming a jumbled mess, it also helps make identifying accounts easier.
With number blocking, you and your CPAs can easily identify what type of account it is by its’ first digit.
If it starts with a “2”, you know it’s a liability. If it’s a 4, you know it’s a revenue account.
2. Set your level 2 accounts
Now that you have the basic architecture done, it’s time to drop in all of your level 2 accounts.
What kind of information fits into each of these 5 overarching categories?
Here’s a quick breakdown of what kinds of accounts are included in each:
a. Revenue accounts
If you manage or own rental property, this typically comes down to one main account: rent payments.
However, it also includes any other source of revenue, such as:
- Utility payments (passthrough)
- Security deposits
- Parking fees
- Pet rent
b. Expense accounts
Your expense accounts are relatively easy to set up, as they’ll most likely be similar or identical to the 15 expense accounts listed on Form 1040.
- Auto and travel
- Cleaning and maintenance
- Legal and other professional fees
- Management fees
- Mortgage interest paid to banks, etc.
- Other interest
- Depreciation expense or depletion
You can also include an “Other expenses” category for things that just don’t fit anywhere else.
However, that can get tricky come tax time as they’ll need to be identified somehow for both your accountant and the IRS.
c. Asset accounts
Most notably, you’ll include a line for each business bank account here.
Mortgage escrow accounts, land, buildings, and improvements are typically included here as well.
Accumulated depreciation is another common account and it’s designed to track the depreciation of your assets over time. Specifically, the original value of those assets, the accumulated depreciation, and the net asset value via the balance sheet.
d. Equity accounts
Equity accounts essentially include two things:
- (Your) contributions, and
Or, in other words, what you put into the business and what you take out.
Expenses paid with cash are also included here as they count as an owner contribution.
e. Liability accounts
Liability accounts include several types of accounts, including:
- Lines of credit
- Credit cards
- Security deposits
3. Put it all together: property management chart of accounts example
Now that we’ve gone through the basics, it’s time to put it all together to see what our chart of accounts looks like.
Below we’ve taken our 5 major categories (the 1,000’s for assets, etc.) and added many sub-accounts based on what we talked about in step 1.
The result is a fairly fleshed out chart of accounts example template for property management:
Complex, but easy to read and chart where each account fits.
Keep in mind you could use this as the basis for any kind of real estate business, including as a rental property chart of accounts template.
OK, let’s finish with the question you’ve likely already been asking yourself:
How do you track multiple properties in your chart of accounts?
How do you track multiple properties?
Taking the template example above, your Dwelling account is 1400.
So, to track multiple properties in your chart of accounts, you’d organize things like this, with another layer of subaccounts:
So, we know that anything starting with “1” (anything in the 1,000s) is an asset.
We also know anything in the 1400s (or starting with “14”) is a property (“Dwelling).
Now, we’ve also identified individual properties with their own third-degree identifier.
So the properties in the example are given the numbers:
With that, you have the 101 on crafting a property management chart of accounts.
A note on owner vs. property manager vs. landlord
One last quick note: how you craft your chart of accounts will vary somewhat depending on if you’re:
- The owner/investor themselves
- The landlord, or
- The property manager
For example, if you’re the property manager, then the rent payments you receive should be listed under “Liabilities” just the same way as you’d list security deposits in liabilities.
You’d also want a separate revenue account for payments to you for your service.
Keep those subtle perspective details in mind when crafting your chart of accounts.
Free template download
Download our free property management chart of accounts template (in Excel format) so you can apply everything you learned from this guide or see if you forgot anything in your current setup.
Manage your properties and your accounts with clarity
Creating a chart of accounts, whether you’re managing a few dozen properties or a few hundred, is key to organizing your accounts effectively.
With a good chart of accounts in place, you can run important reports you depend on with accuracy and empower you or your client’s property management with the most important kind of data: financial data.
It takes a bit of time to set up, but once you have the system up and running, you can easily pass it off to a CPA to manage, whether now or down the road.
Use the tips, steps, and examples we talked about in this guide to make the process of setting up your own chart of accounts simple and easy.