Setting Up A Chart of Accounts For A Property Business

Common Chart of Accounts Mistakes (And How to Avoid Them)

Before diving into setup, let's address the pitfalls that trip up most property managers:

Treating security deposits as income - Security deposits are liabilities, not revenue. They belong on your balance sheet until conditions trigger their use.

Over-complicating with too many accounts - Start lean with essential accounts. You can always add more as your portfolio grows.

Mixing capital improvements with repairs - Capital expenditures (roof replacement) must be depreciated over time, while repairs (fixing a leak) are immediately deductible.

Using "Miscellaneous" as a catch-all - This creates reporting blind spots. If you're posting to "Misc" frequently, create a specific account instead.

What is a Chart of Accounts for Property?

A chart of accounts is your property business's financial roadmap. It organises every transaction into clear categories, giving you the visibility you need to track performance, comply with regulations, and make data-driven decisions.

Why a COA matters for real estate

In property, your COA does more than track money—it separates owner funds, manages trust/client accounting, and provides the granular detail needed for property-level profitability analysis. This structure supports everything from monthly owner statements to year-end tax preparation.

The five core account types

Every property management COA is built on five fundamental categories:

• Assets - Cash, accounts receivable, property values, security deposits held
• Liabilities - Security deposits payable, mortgages, accounts payable, accrued expenses
• Equity - Owner contributions, retained earnings, partner distributions
• Income - Rent, late fees, application fees, parking charges, CAM recoveries
• Expenses - Maintenance, utilities, insurance, property taxes, management fees

How to Structure and Number Your COA

A logical numbering system is the backbone of an effective COA. Here's how to build one that scales with your business.

Block numbering that scales

Use number ranges to group account types:

• 1000–1999: Assets
• 2000–2999: Liabilities
• 3000–3999: Equity
• 4000–4999: Income
• 5000–5999: Expenses

Leave gaps within each block for future expansion. For example, 4100 for base rent, 4200 for late fees, 4300 for application fees.

Sub-accounts for property and owner

Create granular tracking by extending your numbering system:

• 4101 - Rent Income, Property A
• 4102 - Rent Income, Property B
• 5101 - Repairs, Property A
• 5102 - Repairs, Property B

Mapping accounts to financial statements

Ensure each account clearly maps to either your balance sheet (Assets, Liabilities, Equity) or income statement (Income, Expenses). This clarity supports accurate reporting and audit readiness.

Property-Level Tracking and Trust Accounting

Property management requires precise separation of funds and detailed tracking by property, owner, and business unit.

Classes, locations, and unit-level tagging

Use your software's dimensional tracking features:

• Classes to separate by property or owner
• Locations to track by geographic area or building
• Tags for custom categorisation like unit types or lease terms

Security deposits and owner funds as liabilities

Security deposits must be tracked as liabilities until returned or applied to damages. Similarly, owner funds collected on behalf of property owners remain liabilities until distributed, ensuring proper trust accounting compliance.

Compliance considerations by region

Different jurisdictions have varying requirements for security deposit handling, interest payments, and fund segregation. Build these requirements into your COA structure from the start to avoid compliance issues later.

Configure Your Software and Test Scenarios

An integrated property accounting system simplifies COA setup while ensuring accuracy and compliance.

Import a template or start from scratch

Use an industry-standard COA templates that you can customise for your specific needs. Whether you're managing commercial office buildings or residential complexes, start with a template and refine it based on your business model.

Map rent, fees, and vendor bills to accounts

Configure automatic posting rules so transactions flow to the correct accounts:

• Rent payments automatically post to the appropriate income accounts
• Vendor bills route to the correct expense categories
• Security deposits properly record as liabilities

Run test transactions end-to-end

Before going live, validate your setup with real scenarios:

Routine transactions:

• Monthly rent collection and posting
• Vendor invoice processing and approval
• Utility bill categorisation
• Management fee calculations

Edge cases:

• Security deposit refunds with deductions
• Insurance claim proceeds and related repairs
• Capital improvement projects spanning multiple months
• Owner contribution and distribution transactions

Integrated Property Management Solutions vs Other Accounting Solutions

While general accounting software can handle basic COA setup, purpose-built property management platforms like Re-Leased offer distinct advantages:

Built-in property management templates - Pre-configured accounts for rent, CAM/OPEX charges, security deposits, and maintenance expenses.

Multi-entity and class tracking - Automatically separate finances by property, owner, or business unit without complex workarounds.

Integrated workflows - Tenant invoicing, vendor bill approval, and owner reporting all flow through the same COA structure.

Trust accounting compliance - Built-in safeguards for security deposit handling and owner fund separation.

Real-time reporting - Property P&Ls and owner statements update automatically as transactions post.

Governance, Naming, and Team Training

A well-structured COA is only effective with proper governance and team alignment.

Naming conventions that prevent errors

Use consistent, descriptive account names:

• "Landscaping Expenses" instead of "Grounds"
• "Late Payment Fees" instead of "Late Fees"
• "Security Deposits Held" instead of "Deposits"

Change control and who owns the COA

Designate one person as the COA owner responsible for:

• Approving new account additions
• Maintaining naming consistency
• Quarterly reviews and cleanup
• Training new team members

Reporting with a Well-Structured COA

Your COA structure directly impacts the quality and usefulness of your financial reports.

Property P&L and owner statements

With proper account setup, you can generate property-specific profit and loss statements that show:

• Revenue by source (rent, fees, other income)
• Expenses by category and property
• Net operating income for each property
• Variance analysis against budget

Portfolio roll-ups and variance analysis

Consistent COA structure across properties enables portfolio-level analysis:

• Consolidated financial statements
• Performance benchmarking between properties
• Trend analysis over time
• Budget vs. actual reporting

Reduce Risk with Accurate Categorisation

Proper account categorisation isn't just about organisation—it's about reducing financial and compliance risk.

CapEx vs OpEx: avoid misclassification

Capital expenditures and operating expenses receive different tax treatment:

• Operating expenses (repairs, maintenance, utilities) are immediately deductible
• Capital expenditures (roof replacement, HVAC installation) must be capitalized and depreciated over time

Set up separate accounts for each to ensure proper treatment.

Mortgage principal vs interest and escrow

Mortgage payments contain three components that require different accounting treatment:

• Principal reduces liability on your balance sheet
• Interest is a deductible expense
• Escrow payments should be recorded in prepaid accounts until the underlying expense is paid

Minimise "Miscellaneous" usage

Excessive use of miscellaneous accounts creates reporting blind spots and makes financial analysis difficult. When you find yourself posting frequently to "Miscellaneous," create a specific account for that transaction type instead.

Keep Evolving: Review and Optimise Quarterly

Your COA should evolve with your business. Regular reviews ensure it continues serving your needs effectively.

Archive or retire unused accounts

During quarterly reviews:

• Identify accounts with no activity for six months or more
• Archive accounts no longer needed but preserve historical data
• Consolidate similar accounts that serve the same purpose

Align with strategy, tax, and audit needs

As your business evolves, ensure your COA supports:

• New property types or investment strategies
• Changing tax regulations and reporting requirements
• Audit and compliance needs
• Investor reporting requirements