Trust Accounting

Mar 1, 2016 | CEO Blog

Well, we have all heard this magical word right? Who hasn’t! As a property manager, you are often asked whether or not you are in line with the state trust account regulations. State laws in regards to trust accounting can vary quite a bit. This is going to sound a little bit strange. There are states who have no regulations on the money that is sitting in TRUST. There are states that have no regulation on how/when you distribute money to the owners. Some of us are in those lucky states that are extremely strict about your ability to work within trust.

Trust money is money that belongs to the person that has purchased a service. It is similar to buying a house. You often are asked for a down payment. The escrow company will hold that money in trust, until both parties agree that the service or item has been provided. With vacation rentals, you can determine how quickly money goes from being the guests money, to becoming the owners money. This is all based on the revenue recognition model that you use.

If you look at the flow of money for a reservation, when a guest makes a reservation, he makes a payment. That money truly belongs to the guest. Services have not been rendered and you have basically taken money in trust for the guest. Every property management company has different revenue recognition definitions. In the case of Streamline, we have the ability to recognize revenue at cash, check-in, in-house, and check-out. This gives you all the flexibility that you need. At that point, ALL the money belongs to the owner or the corresponding authority (such as taxes). We are basically holding an owners’ account in trust.

Being the owners money, a property management has the right to pay bills on the owners behalf. They are going to be writing a check from trust.

Once you enter all of your owner fees and close the owner statement, the system will distribute money from the trust account, to the owner and to the management company.

With our system, you have two options. We have a built-in reconciliation process, vendor payables system and money moves in trust throughout the system. If you are simply trying to run a property management company and you have another software which represents your company books. When you write yourself a check out of Streamline, it becomes operating income on the other “company” books. In our other accounting method, it gets more complicated. This method is looking at the Revenue and Expenses that are generated for the property management company. It becomes convenient for smaller companies who can use one set of books for everything. Unfortunately, it is a complicated process.

A word to the wise, don’t be tempted by your bank account! I have many friends in the property management business. Just before peak season starts, that bank balance looks extremely tempting. For those of us who have been through this, that money goes away instantly when you begin to pay owners. I am amazed sometimes from one day to the next. I have seen companies put themselves out of business and create legal troubles because they decided to use trust money for unjustified purchases. When it came down to pay the owner, they simply did not have that money. When you play with trust money, instead of utilizing money from your operating account, you are playing with fire. I hope this helps some people realize the importance of treating trust money correctly. I am not an accountant, otherwise I would have thrown in the words debit and credit ;). My background is in engineering and business. Being involved with property management for so many years, I want to make sure everyone realizes that trust accounting is probably the single most important aspect of your business. Check with your state regulations and make sure that you are 100% within the rules and regulations of your state.

I want to wish all of you the best of luck with your trust accounting and remember…… It may look like a lot of money in that bank account, but it is not really yours 😉

-Carlos Corzo, CEO