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Understanding your financial statements is key to being a property owner. And the key to understanding your property management financial statements is to know if they are being prepared using the “Cash Accounting” method or the “Accrual Accounting” method of accounting.
Magnum York uses the Cash Accounting method for rental properties. The Accrual Accounting method is used for larger properties like Condominiums.
Cash Accounting for Rental Property Management
With the CASH method of accounting, you record transactions as they occur; e.g. when you pay your electrician to fix the doorbell, you enter it into the books as an expense. Similarly, as you collect condo fees, you
enter them as income. This lets you know “Cash on Hand” but not if you’ve got enough money coming in to pay your upcoming bills. Mismanagement is costly.
Accrual Accounting for Condo Property Management
Magnum York uses the ACCRUAL method which means that you record payments and income as soon as money is due or owed; when the electrician invoices, the amount is entered as an Accounts Payable. Condo Fees show up as Accounts Receivables.
Accrual accounting is a more sophisticated approach and makes it easier to manage the true nature of your corporation’s cash flow. You’ll see the “Reporting Period” on your statements at the top — keep this date range in mind when thinking about the amounts shown.