This article will give you an overview about Trust and Operations Accounting, its differences and processes.
What is Trust Accounting?
Trust accounting is the process involving bookkeeping, auditing, and reporting so that a trust account remains compliant with the requirements of the law. This helps keep track of which money is due to which entity (Property Management Company, Property Owners, Vendors, Tax Authorities etc.). In trust accounting, all transaction records are processed from the trust account’s perspective. This method ensures that funds from the trust account are not commingled with the property management company’s operating account. Thus, the property management company must not spend for rental property related expenses. Such expenses should be charged to the trust account.
Trust Account
The trust account holds money received from the guests until the funds are transferred to other bank accounts or entities. These include your property management company’s bank account, property owners’ bank accounts, as well as money due to tax authorities, and payment third-party service providers.
Property Management Company (PMC)
Is the entity in charge of the operation, control, maintenance, and oversight of properties involved in the long term and short term rental businesses. The PMC is also responsible in the Trust accounting and ensuring that the Trust account is compliant with the requirements of the law.
Property Owners
Are the owners of the properties being managed by the Property Management Company. At the end of a particular accounting period, property owners are paid by the Property Management Company with their net distributable share of each of their property.
Net Distributable Share
Is the amount due to property owners after deducting Property Management Company’s commissions, payment of taxes, payment to vendors, and other property related expenses.
Property Management Commission
A percentage of total rental rate which property managers get. This is also being paid out from the trust account going to the Property Management Company’s bank account.
What is Operational Accounting?
The day to day accounting operations of the property management company which includes but not limited to bank reconciliation, accounts receivable and accounts payable management, accounting of fixed assets and prepayments, preparation of financial statements compliant with US Generally Accepted Accounting Principles and tax and other statutory filings.
Trust and Operations Accounting Process
