Background
This short guide was written and reviewed by Short-Term Rental trust accounting experts for hosts and large operators to navigate the complexities of using accounting softwares to handle their operations. In particular, it focuses on the role of existing softwares like QuickBooks in collaboration with Clearing, a tailored trust accounting solution for STR managers. It was built to make processes as scalable and simple as possible.
The information provided in this guide is for general informational purposes only. While we strive to ensure the accuracy and reliability of the information presented, we make no representations or warranties of any kind, and recommend you to review the trust accounting rules of your state.
If you have any questions or suggestions, please reach out to [email protected].
Definitions
PMC
Property Management Company (Short-term rental host or operator).
PMS
The Property Management Software used by the Property Management Company.
Booking revenue reconciliation
The process of matching the expected reservation’s payout with the actual bank deposit to ensure that funds have been received before paying owners. Also used to track the funds received for future reservations
Bank account reconciliation
The process of matching the transactions of a bank account with the bank statement to ensure that all transactions have been captured for a given period by comparing the ending balance, the starting balance and the total transactions amounts.
Trust accounting
The process of allocating certain categories of financial transactions, e.g., cleaning fees, to either the property management company, the owner or pass-through.
Ideal bank setup for Short-Term & Vacation Rental
Bank accounts:
1 Operating account for business expenses, to collect your management fees and other income
1 Trust account to collect booking revenues
Clearing and QuickBooks
What is the role of QuickBooks or Xero for STR operators?
QuickBooks, Xero and other accounting softwares are not tailored for Short-Term Rentals and don’t handle trust accounting natively. They are a great solution to track your income statement and balance sheet. They typically require a bookkeeping/accounting expert to navigate their complexities.
How to use Clearing to make your life easier in QuickBooks and Xero?
Clearing is a tailored trust accounting solution to handle the unique needs of Short-Term Rental operators & hosts. Clearing connects to every relevant source of data (PMS, bank accounts, credit cards, etc.) to track your finances at the most granular levels. It aggregates and pushes the necessary information to other accounting software, that, otherwise have to be manually calculated in Excel and manually imported.
Data transfers between Clearing and QuickBooks
→ Scenario 1: Trust income is NOT recognized by the management company (recommended for managed properties)
Linked accounts to each system
In QB: only link the Operating bank account
In Clearing: link the operating & trust account
Data received in each system
In QB: in/out transfers to/from the operating account. Rental income won’t be in QB
In Clearing: transfers in/out the operating and trust account. Rental income is tracked in Clearing.
Transfers between bank accounts
Booking payouts from OTAs → Trust account
Trust account → Payment to owners (done in Clearing)
Trust account → Monthly transfers to the PMC operating account (done in Clearing) including
Management commission earned on bookings paid to owner for that month
Total of all fees kept by the management company (e.g., cleaning fee, pet fee, etc.)
Total expenses paid by the management company out of their operating account to be reimbursed.
Total markup on expenses billed to owners and paid out of the operating account (and deducted from their payout)
Total expenses paid out of the trust account but not billed to the owner, i.e. expenses taken by the PMC, e.g. processing fees or host channel fees.
Note that payments to vendors (e.g., cleaners) made from the trust account and directly billable to the owner are not listed here because they are paid using owner funds.
Sync between Clearing and QuickBooks
A monthly management invoice can be created in Clearing with all those items and pushed to QuickBooks. Each item can be mapped to a specific product, itself mapped to a specific account from your chart of accounts in QuickBooks.
That invoice will be matched & marked as paid with the payment received from the trust account to the operating account.
→ Scenario 2: Trust income is recognized by the management company
Linked accounts to each system
In both: link the Operating & trust account
Data received in each system
In both: transfers in/out the operating and trust account. Rental income is recognized as income to the PMC company. They can all go under a general “Rental income” account in the QB chart of account. The details by channel, asset, owners, etc., don’t need to be in QB. The booking revenue reconciliation can be done in Clearing.
Transfers between bank accounts
Booking payouts → Trust account
Trust account → Payment to owners (done in Clearing)
Trust account → Monthly transfers to the PMC operating account (done in Clearing) with
Management commission earned on bookings paid to owner for that month
Total of all fees kept by the management company (e.g., cleaning fee, pet fee, etc.)
Total expenses paid by the management company out of their operating account to be reimbursed
Total markup on expenses billed to owners and paid out of the operating account (and deducted from their payout)
Total expenses paid out of the trust account but not billed to the owner, i.e. expenses taken by the PMC, e.g. processing fees or host channel fees.
Note that payments to vendors (e.g., cleaners) made from the trust account and directly billable to the owner are not listed here because they are paid using owner funds.
Sync between Clearing and QuickBooks
A monthly management invoice can be created in Clearing with all those items and pushed to QuickBooks. Each item can be mapped to a specific product, itself mapped to a specific account from your chart of accounts in QuickBooks.
That invoice will be matched & marked as paid with the payment received in the operating account, out of the trust account.
Payment to owners are considered an “Expense” for the PM company.
→ Other sync between Clearing and QuickBooks
Journal entries
You can generate a journal entry for a bank account deposit that has been split with sub-transactions. Typically this would work for OTA deposits split by reservation (and by asset). Each item of the journal entry can be mapped to a different Class and chart of account depending on the asset and category. Then the journal entry can be matched in QuickBooks with the bank deposit.
Expenses
Expenses in Clearing can be pushed to Clearing as Expense with a specific Class and Chart of account.