Posting Point
The tax provisions and rules are unique to the real estate sector. The real estate industry deals in transactions of considerable amounts, giving the real estate accounting services a challenge. The accountant must have specialized knowledge about handling the books of real estate agents, brokers, and firms. Maintaining up-to-date records with accurate information requires businesses to undertake accounts reconciliation periodically. Accounting books are always prone to errors, manipulation, fraud, etc., irrespective of the industry. Therefore, conducting accounts reconciliation and implementing other security measures is crucial in protecting the sanctity of prepared records and eliminating misuse or misappropriation of sensitive information.
Usually, the businesses undertake bank account reconciliation, evaluating bank statements and internal bank accounts. Accounts reconciliation is the process of matching internal documents with an external source to verify the accuracy and reliability of the former. Any errors or discrepancies identified must get corrected early. However, reconciliation is applicable for other documents and activities also, including:
- Accounts payable reconciliation
- Accounts receivable reconciliation
- Credit card reconciliation
- Cash reconciliation
The real estate businesses must conduct reconciliation at least once a month. However, if the transactions are voluminous, doing this activity weekly or daily in specific circumstances will be preferable. The real estate accounting services providers may face the following problems due to which reconciliation becomes crucial:
- Transposed transactions cause an imbalance in the books and transactions
- Missing cash or cheque deposits that got forgotten while entering the books
- Unadded interest on the bank account savings
- Small checks for bills that you failed to record
- Receiving payments from clients that you didn’t know about and couldn’t enter books
- Unauthorized transactions with no evidence or bill to support
Delaying the reconciliation process thinking nothing is wrong or everything will remain normal is an illusion. Suppose the business does not conduct reconciliation at least once a month, and it becomes a quarter, semi-annual, or annual activity. In that case, it can lead to oversight and compromised accuracy and quality of financial statements. The real estate accounting services will suffer from errors and deviations in the books, impacting the stakeholders’ decisions and attracting penalties from the IRS.
Businesses managing properties must not play fast and loose with the significant accounting details. Instead, they can incorporate redundancy in accounting. It means entering transactions in two or more places like a journal, a chart of accounts with main and sub-accounts, etc. The multiple transactions and entries will provide cross-referencing and help maintain accurate records. It will make real estate accounting simplified and efficient.
The businesses that handle ‘escrow accounts’ are responsible for managing the funds and supporting accurate distribution. This fiduciary responsibility prompts them to conduct reconciliation, as otherwise, the funds may get misused. A three-way reconciliation can help in such cases. While usually, a business takes an internal and external document for comparisons, three-way matching goes a step ahead. The three documents include:
- Bank statement
- Internal document
- Escrow account trial balance
There must be a balance in amounts of all three documents. Any discrepancy may lead to imbalance, causing firms to look into the errors. Regular reconciliation provides businesses with an extra protection blanket. It saves them from irregularities in the trust accounts. Real estate firms must segregate duties and hire a separate reconciliation person than the one who prepared the statements. Reconciling daily or weekly facilitates compliance with the legal standards. Firms can employ an outsourcing partner for these activities for professional assistance and access to the latest technology.
