Three-Way Bank Reconciliations in the Real Estate Industry: A Guide for Property Managers

Three Way Bank Reconciliation Property Management

Managing trust accounts is an essential aspect of property management accounting in the real estate industry. Property managers must accurately maintain financial records for their clients and tenants. To achieve this, property managers can perform three-way bank reconciliations using property management software like AppFolio, Buildium, Yardi, Rent Manager, and Propertyware.

A three-way bank reconciliation involves comparing three records for the same time period: the bank statement, receipts and disbursements journal or check register, and the owners’ ledgers for property management clients’ trust accounts or tenant ledgers for security deposit accounts. This process helps identify discrepancies, ensuring accurate financial records for property managers.

Here’s a step-by-step guide for property managers to perform three-way bank reconciliations with trust accounts using property management software:

1. Gather records
Collect your bank statement, receipts and disbursements journal (or check register), and owners’ ledgers or tenant ledgers for the trust accounts in question.

2. Compare balances
Compare the deposits and withdrawals from the bank statement to the debits and credits in your receipts and disbursements journal and the trust account ledgers in your property management software.

3. Identify differences
Differences in balances may arise due to timing, such as deposits in transit and outstanding checks. Additionally, bank fees, penalties, and interest income may be recorded directly in your bank account but not yet reflected in your receipts and disbursements journal or trust account ledgers.

4. Resolve any issues
Some issues may require more effort to resolve, such as voided checks that cleared your bank account, transactions processed by your bank twice, errors in bank records or your records, or older outstanding checks that need to be voided. When resolving discrepancies, communicate with the bank or the intended recipients of the transactions as needed.

5. Adjust balances
Adjust the bank balance by accounting for deposits in transit, outstanding checks, and any bank errors identified during the reconciliation process. Then, adjust the receipts and disbursements journal and trust account ledgers by adding in bank fees or penalties, subtracting interest income, and correcting any errors made in the accounting records.

6. Reconcile records in property management software
Ensure that the property management software records are updated to reflect the adjustments made to the bank balance, receipts and disbursements journal, and trust account ledgers. This may involve updating transaction records or making adjustments to the general ledger within the software.

7. Compare balances
After adjusting all three records – bank balance, receipts and disbursements journal, and trust account ledgers – the balances should match. If the adjusted balances still don’t match, revisit the previous steps to identify the discrepancy.

8. Book adjusting journal entries
Finally, record any necessary adjusting journal entries in your general ledger to modify the trust account balances accordingly. Adjustments may include bank fees or penalties, interest income, or correcting discrepancies due to errors in your records.

By following this guide, property managers can efficiently perform three-way bank reconciliations with trust accounts using property management software, ensuring accurate financial records and better management of their real estate properties.