Double-Entry Accounting for Rental Property Owners

Double-entry accounting is the standard bookkeeping method most companies use today to record transactions. With this method, every transaction has two parts, a credit and a debit, which show where funds come from and end up. By using this two-part system, rental property owners can reduce the risk of bookkeeping errors, avoid duplicate transactions, and help keep the books balanced.

Apart from rental property owners, accounting professionals prefer and recommend the double-entry system. However, some businesses still use the single-entry system. Not sure which system or rental property accounting software is right for your rental business? You’re in the right place.

Let’s start by defining some essential accounting terms. Then, we’ll discuss the pros and cons of single- and double-entry accounting for rental property owners before sharing some examples of how it works.

Key Takeaways

• Single-entry accounting is prone to errors and doesn’t provide a full financial picture for rental property owners.
• Double-entry accounting is based on checks and balances, making bookkeeping errors less likely.
• Double-entry accounting is the standard accounting system used by professional bookkeepers and CPAs.
• Real estate investors benefit from specialized accounting software based on double-entry accounting.

Foundational Accounting Terms

Let’s begin by clarifying some essential accounting terms:

Asset: an item of value, like a bank account or property, owned by the company. Assets are typically listed in the top section of the chart of accounts.

Chart of accounts: a record-keeping system for a company’s financial data. It lists every financial account used by the company and is based on debit and credit transactions. The chart of accounts is divided into five sections: assets, liabilities, equity, revenue, and expenses.

Credit: an entry that (1) increases a liability account or (2) decreases an asset account. Credits are usually on the right side of a double-entry accounting entry.

Debit: an entry that (1) increases an asset account or (2) decreases a liability account. Debits are usually on the left side of a double-entry accounting entry.

Equity: accounts that show the funds that have been invested in the company, either through owner contributions or reinvested earnings. Equity accounts are shown below the liabilities section in the chart of accounts and on the balance sheet.

Expense: costs that the company incurs for operations. Expense accounts are below the revenue accounts in the chart of accounts.

Liabilities: something that the company owes to or has borrowed from someone else, like a loan or credit card balance. Liabilities are listed below assets in the chart of accounts.

Revenue: the income generated by the company’s operations, like rents or services rendered. These accounts are the fourth section of the chart of accounts, after equity.

Single-Entry Accounting: Simple but Risky

If you’re new to bookkeeping, you may think that single-entry accounting means you only need to create one entry per transaction. That’s not the case, though. With the single-entry method, you record each transaction once in every account that the transaction affects.

That means you have to create at least two entries for a single transaction. And with complicated transactions — like recording a closing entry on a new rental property — you’ll need to create even more entries.

How Single-Entry Accounting Works

In the single-entry accounting system, all transactions are recorded in a cash book. Think of your cash book like a ledger with columns for transaction details, like these:

• dates
• descriptions
• notes
• running balance
• transaction value
• transaction type, like income or expense

Are you tracking your expenses in a spreadsheet? If so, you’re using the single-entry method, and the spreadsheet is your cash book.

At first glance, spreadsheets seem like a simple, cheap way to track your rental’s financial activity. But remember that each account must have its own ledger or spreadsheet. It’s not only one spreadsheet per bank account. Every income and expense account will need its own spreadsheet, too, so if you want more information about your rental’s financials, you’ll need to create and update additional spreadsheets.

Let’s look at an example. This cash book shows the operating account activity for 580 Maple Ave.

If we wanted to know how much the Maple Ave. property spent on the mortgage, water, or cleaning bills annually, we’d have to keep separate pages for those accounts.

Disadvantages of Single-Entry Bookkeeping

1. It’s an incomplete financial system.

Investors new to rental property accounting often believe the single-entry spreadsheet method is the simplest and quickest approach to bookkeeping. However, they don’t realize that the single-entry method is an incomplete financial system. Its focus is on recording bare essentials, like revenue and expenses.

With single-entry accounting, you don’t track liabilities and assets. Let’s say you get a loan to cover a capital improvement for your rental unit. In your cash book, you’ll record the loan money as income, because that’s the only option. In the double-entry system, you’d record the loan funds as a liability so you can track the loan balance.

2. The risk of errors and fraud increases.

Having balanced transactions helps us catch errors and prevent them from carrying forward into the next accounting period. But the single-entry system doesn’t have a way to balance each transaction. At best, that makes bookkeeping errors more likely — and at worst, it’s easier to commit fraud.

When you purchase a rental property, you’ll need to record multiple entries because several accounts are affected: buildings, land, taxes, insurance, deposits, mortgage, and more. With each entry you need to make, your chance of recording a figure or performing a calculation incorrectly increases. And remember — each entry is separate, so locating the error later will take longer.

If you use the double-entry method, though, you can record the purchase with a single entry. That makes it easier to confirm that the debits and credits balance and that you haven’t made an error.

3. Reporting is limited.

Remember how the single-entry system doesn’t include liability balances or asset tracking? That means you can’t produce balance sheets with this system. Balance sheets are one of the top three financial reports businesses rely on. They help real estate investors track liabilities, assets, and equity, so if you use the single-entry system, you’ll need to monitor those items separately.

Here’s another problem — sometimes transactions cross accounting periods. For example, you might provide a service for a tenant in one month, but they don’t pay for it until the next month. The single-entry system lacks an effective way to address that.

Double-Entry Accounting: The CPA-Approved Method

For double-entry accounting, a single transaction includes both a debit and a credit. You record the debit and credit to different accounts, and the totals must balance. That’s a crucial element of this method. It provides a quick way to double-check your figures, thereby improving the accuracy of your books.

How Double-Entry Accounting Works

To see how this system works, let’s look at an example for our sample property, 580 Maple Ave. In this scenario, we’ve hired cleaners for $250. The entry would look like this:

This entry tells us that $250 left the operating account because of a repair and maintenance expense. If our chart of accounts had a subaccount for cleaning fees, we could use that account for even more detail in our financial reports.

Pro tip: Debits are always on the left, and credits are on the right.

Debits and credits can either increase or decrease an account depending on the account type. Keep this chart handy in case you ever need to make a manual journal entry:

Every transaction you record will include at least one debit and one credit, and the transaction will affect only the accounts included in the entry. So, for our cleaning fee example, the entry affects the checking account and the repairs and maintenance account. Since the double-entry system is comprehensive, this single entry will impact both the balance sheet and the profit-and-loss (P&L) statement. The balance in the checking account shown on the balance sheet decreases by $250, and the repairs and maintenance line on the P&L report increases by $250.

Advantages of Double-Entry Bookkeeping

Unlike the single-entry method, which can only account for income and expenses, the double-entry system tracks five types of accounts: assets, liabilities, equities, revenue, and expenses. The improved recording capabilities make this accounting method comprehensive, allowing for complete financial reporting, inventory tracking, and account reconciliation—even when transactions span reporting periods.

Notice how in our cleaning example, the books stay balanced because the change in the asset account (the checking account) matches the change in the expense account. It doesn’t seem like a big deal in this simple example, but balancing entries is crucial as transactions become more complex with multiple accounts.

A typical property purchase journal entry can have at least 10 lines, giving you plenty of opportunities to transpose digits or move a decimal. But the double-entry accounting method ensures that the transaction balances because the debits and credits must be equal. Many bookkeeping programs — including TurboTenant Accounting—require that a transaction balance before saving it, preventing the introduction of errors into your books.

Practical Application: Examples of Double-Entry Bookkeeping

Let’s look at a few common transactions you’ll deal with as a rental property owner and review how you’d use the double-entry accounting method to record them.

• Receiving Rent Payments

Let’s say 580 Maple Ave. is a duplex that rents for $1,000 per unit per month. When the rent comes in, we’ll record this entry:

This transaction shows that our asset account gained $2,000 and our income accounts increased by the same amount, so our transaction is balanced. Our balance sheet will show the update in the asset account, and our P&L will show the change in our income accounts.

• Taking Out a Loan

If we needed to record a new loan for our property, we’d use this entry:

This shows that our checking account (the asset) increased by $25,000, and our liability account (the new loan) balance is $25,000. The balance sheet will show the updates to both accounts. This entry won’t affect the P&L.

• Paying the Mortgage

For our mortgage payment, we’ll split out the principal and interest.

Here, we’re paying $983 from our checking account, so the asset balance on our balance sheet will decrease. The liability account for our mortgage will decrease by the principal amount, $848.25. And on the profit-and-loss report, we’ll see an increase of $134.75 on the mortgage interest expense line.

Simplify Your Bookkeeping with TurboTenant

Double-entry accounting doesn’t have to be complicated. TurboTenant Accounting is built specifically for rental property owners to simplify accounting. We based our platform on CPA-approved double-entry methods to help you track assets, liabilities, income, and expenses — all without the hassle of spreadsheets.

Plus, our software includes ready-to-use templates, a real estate-specific chart of accounts, and automated bank imports to make bookkeeping faster and more accurate. Whether you manage one unit or a full portfolio, we give you the tools to generate accurate reports and stay tax-ready year-round.

With TurboTenant, you’ll gain clearer financial insights, reduce the risk of errors, and feel more confident during tax season. Plus, you can access your data anytime, from anywhere, and share your account books with your tax preparer or accountant.

Spend less time on bookkeeping and more time on your rentals — sign up for your free 14-day trial today!