Vacation Rental Trust Accounting Course

Flow of Funds in Short-Term Rentals

In Section 3 of our Vacation Rental Trust Accounting Course, we delve into the "Flow of Funds in Short-Term Rentals," providing a comprehensive look at how money moves within the industry. This section includes practical insights and examples to help you understand the allocation of reservation revenue, management of deposits and fees, and both monthly and end-of-stay accounting procedures.

Case Study: Reservation Revenue Breakdown

Imagine a reservation for a beach house that generates $2,000 in total revenue. Here's how this revenue might be allocated:

• Base Rent: $1,500, which is the amount paid by the guest for the stay itself.
• Cleaning Fee: $100, charged to cover the cost of cleaning the property post-stay.
• Service Fee: $200, a fee charged by the property management for booking services.
• Occupancy Tax: $200, taxes collected on the rental amount that must be remitted to local authorities.
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From this total, several deductions are made:

• Property Manager's Commission: Assuming a 20% commission rate on the base rent, the property manager would earn $300.
• Cleaning Fee Payout: The $100 cleaning fee is paid directly to the cleaning service provider.
• Occupancy Tax Remittance: The $200 in taxes collected is set aside to be paid to the local tax authority.

After these allocations, the remaining funds are distributed to the property owner, minus the property manager's commission, resulting in the owner receiving $1,200.

Managing Deposits and Fees

Managing various deposits and fees accurately is crucial in vacation rental accounting:

• Security Deposits: These are collected to cover potential damages. They are held in trust and only used if there is damage to the property. If not, they are fully refunded to the guest.
• Service Fees: Fees for booking services or other amenities offered to guests. These are considered revenue for the property management company and are accounted for as such.
• Occupancy Taxes: Taxes collected must be accurately tracked and remitted to the appropriate governmental body on time to avoid penalties.
• Refunding Processes: Any security deposits or prepaid amounts for services not rendered by the end of a stay must be promptly refunded to guests, requiring careful tracking and management.

Monthly and End-of-Stay Accounting Procedures

The flow of funds from booking to disbursement involves several steps, summarized as follows:

• At Booking: Funds are received and allocated into appropriate categories (rent, deposits, fees, taxes) in the trust account.
• During the Stay: Any incidental charges or adjustments are recorded and managed.
• End of Stay: Security deposits are reviewed and refunded if applicable, and any additional charges are settled.
• Monthly Accounting: At the end of each month, property managers calculate the total revenue earned, deduct expenses (including commissions), and distribute net income to property owners. This also includes preparing and issuing detailed financial statements to owners, showcasing revenue, expenses, and net income for their properties.