Practical Accounting For Apartment Communities

Why Accounting Matters for Apartment Communities

• Helps track income & expenses accurately.
• Provides financial clarity for better decision-making.
• Helps detect errors & prevent financial losses.

What is a Chart of Accounts & Why It’s Important?

• A Chart of Accounts (COA) is a structured list of all financial accounts in a business.
• Organizes transactions into categories like assets, liabilities, income, and expenses.
• Helps in accurate bookkeeping & financial reporting.
• Essential for tracking business performance & tax compliance.
• Provides a clear financial structure for decision-making.

Step-by-Step Guide to Creating a Chart of Accounts

1. Identify Key Account Categories

   • Assets, Liabilities, Equity, Income, and Expenses.

2. Define Subcategories for Each

   • Example: Under Expenses → Rent, Salaries, Utilities, etc.

3. Assign Account Codes

   • Use a numbering system (e.g., 1000 for Assets, 2000 for Liabilities).

4. Structure Accounts Based on Business Needs

   • Customize based on your industry & reporting requirements.

5. Ensure Consistency & Simplicity

   • Keep it structured yet easy to understand and maintain.

Account Types in Accounting

These account types form the foundation of the Chart of Accounts (COA).

Sample Chart of Accounts for Apartment Communities

Businesses can customize their Chart of Accounts based on their needs.

How to Easily Remember What to Debit & Credit

One easy way to remember what to credit and debit is..

To understand the "normal balance" of an account type and act accordingly

Normal Balance for Each Account Type

The normal balance indicates whether an account naturally holds a Debit or Credit balance.

The Concept of Normal Balances & Account Types

What is a Normal Balance?

• Every account has a normal balance, either debit (Dr) or credit (Cr).
• This tells us whether an account naturally holds more debits or credits.

Two Main Categories:

1. Debit Normal Balance → Assets & Expenses
2. Credit Normal Balance → Liabilities, Equity & Income

Simple Trick: DEAD CLIC

To remember what to debit and credit:

• Debit → Expenses, Assets, Drawings
• Credit → Liabilities, Income, Capital

DEAD CLIC helps you remember which accounts are debited and credited.

Sample Transactions Using Normal Balances Technique

Recording Business Transactions: A Step-by-Step Guide

1. Identify accounts involved.
2. Decide Debit & Credit (DEAD CLIC).
3. Record journal entry.
4. Post & Verify (Debits = Credits).

Clear records = Better decisions!

What is a Journal Entry?

• A journal entry records a financial transaction in the accounting system.
• It follows the double-entry rule:
  • Debit one account
  • Credit another account

When to Record a Journal Entry?

Any financial transaction affecting accounts:

• Buying or selling goods/services
• Paying expenses (rent, salaries, utilities)
• Receiving income (sales, interest)
• Borrowing or repaying loans
• Adjusting accounts at the end of a period

Every transaction must be recorded accurately & on time to maintain correct financial records!

Best Practices for Keeping Your Books Clean

• ✅ Record transactions immediately – Avoid missing entries.
• ✅ Categorize expenses properly – Use the right accounts.
• ✅ Reconcile bank statements regularly – Catch errors early.
• ✅ Separate business & personal finances – Use a business account.
• ✅ Keep invoices & receipts – Essential for tax & audits.
• ✅ Review books monthly – Ensure accuracy & track performance.

Clean books = Better decisions & smooth tax filing!

Managing Purchases & Sales Transactions

📌 Purchases (Buying Goods & Services)

• Record supplier invoices immediately.
• Categorize purchases under the right expense or inventory account.
• Track GST input credit for tax benefits.

📌 Sales (Selling Products & Services)

• Issue invoices promptly & accurately.
• Record sales under income accounts with proper tax details.
• Track receivables to ensure timely payments.

Accurate records = Better cash flow & tax compliance!

How to Record Purchases

What You’ll Learn:

• How to record purchases of goods, services, and raw materials
• Journal entries for cash & credit purchases
• Key points to remember when recording purchases

Understanding purchases helps track business expenses and inventory accurately!

Inventory Purchase (Asset) – Cash Payment

When does this apply?

• Business buys goods for resale or stock for operations.
• Paid immediately using cash or bank transfer.

Journal Entry Format:

• Debit: Inventory (Asset)
• Credit: Cash / Bank (Asset)

Inventory is an asset until sold.

Inventory Purchase (Asset) – Credit Purchase

When does this apply?

• Business buys goods for resale or stock for operations.
• Payment is not made immediately; instead, the supplier allows credit terms.

Journal Entry Format:

• Debit: Inventory (Asset)
• Credit: Accounts Payable (Liability)

The business owes money to the supplier until payment is made.

Example – Inventory Purchase (Credit Purchase)

Scenario:

A business purchases ₹50,000 worth of stock on credit (to be paid later).

Journal Entry:

Key Points:

• Inventory is an asset until sold.
• Accounts Payable is a liability (amount owed to the supplier).
• Helps track pending payments and manage cash flow.

Expense Purchase – Cash Payment

When does this apply?

• Business buys services or consumables (e.g., office supplies, rent, utilities).
• Paid immediately using cash or bank transfer.

Journal Entry Format:

• Debit: Expense (e.g., Rent, Office Supplies, Utilities)
• Credit: Cash (Asset)

Expenses are immediately recognized in the Profit & Loss statement.

Example – Expense Purchase (Cash Payment)

Scenario:

A business pays ₹10,000 for office rent in cash.

Journal Entry:

Key Points:

• Expense is immediately recorded as a business cost.
• Cash decreases as payment is made.
• Helps track operational spending and profitability.

Expense Purchase – Credit Purchase

When does this apply?

• Business buys services or consumables (e.g., office supplies, rent, utilities).
• Payment is not made immediately; instead, the supplier allows credit terms.

Journal Entry Format:

• Debit: Expense (e.g., Rent, Office Supplies, Utilities)
• Credit: Accounts Payable (Liability)

The business owes money to the supplier until payment is made.

Example – Expense Purchase (Credit Purchase)

Scenario:

A business receives an office rent invoice for ₹10,000, to be paid later.

Journal Entry:

Key Points:

• Expense is recognized immediately, even if payment is due later.
• Accounts Payable is a liability (amount owed to the supplier).
• Helps track outstanding payments and manage cash flow.

Products/Goods Sale (Revenue) – Cash Payment

When does this apply?

• Business sells products/goods to a customer.
• Customer pays immediately via cash, card, UPI, or bank transfer.
• Inventory (Asset) decreases as goods are sold.

Journal Entry Format:

1️⃣ Recording the Sale:

• Debit: Cash (Asset)
• Credit: Sales Revenue (Income)

2️⃣ Recording Inventory Reduction:

• Debit: Cost of Goods Sold (Expense)
• Credit: Inventory (Asset)

Revenue is recorded at the selling price, while inventory is reduced at its cost price.

Products/Goods Sale (Revenue) – Cash Payment

When does this apply?

• Business sells products/goods to a customer.
• Customer pays immediately via cash, card, UPI, or bank transfer.
• Inventory (Asset) decreases as goods are sold.

Journal Entry Format:

1️⃣ Recording the Sale:

• Debit: Cash (Asset)
• Credit: Sales Revenue (Income)

2️⃣ Recording Inventory Reduction:

• Debit: Cost of Goods Sold (Expense)
• Credit: Inventory (Asset)

Revenue is recorded at the selling price, while inventory is reduced at its cost price.

Example – Products/Goods Sale (Cash Payment)

Scenario:

A business sells products for ₹25,000 (selling price), which originally cost ₹15,000. The customer pays in cash.

Journal Entry:

1️⃣ Recording the Sale:

2️⃣ Recording Inventory Reduction:

Key Points:

• Sales Revenue (Income) increases when goods are sold.
• Cash (Asset) increases as payment is received.
• Inventory (Asset) decreases since goods are sold.
• COGS (Expense) records the cost of the items sold.

Products/Goods Sale (Revenue) – Credit Sale

When does this apply?

• Business sells products/goods to a customer.
• Customer buys on credit (agreed to pay later).
• Inventory (Asset) decreases as goods are sold.

Journal Entry Format:

1️⃣ Recording the Sale:

• Debit: Accounts Receivable (Asset)
• Credit: Sales Revenue (Income)

2️⃣ Recording Inventory Reduction:

• Debit: Cost of Goods Sold (Expense)
• Credit: Inventory (Asset)

Revenue is recognized when goods are sold, even if payment is received later. Inventory is reduced at its cost price.

Example – Products/Goods Sale (Credit Sale)

Scenario:

A business sells products for ₹30,000 (selling price), which originally cost ₹18,000. The customer will pay later.

Journal Entry:

1️⃣ Recording the Sale:

2️⃣ Recording Inventory Reduction:

Key Points:

• Sales Revenue (Income) increases when goods are sold.
• Accounts Receivable (Asset) increases since payment is due later.
• Inventory (Asset) decreases as goods are sold.
• COGS (Expense) records the cost of the items sold.
• Helps track outstanding payments and inventory usage.

Service Sale (Revenue) – Cash Payment

When does this apply?

• Business provides a service to a customer.
• Customer pays immediately via cash, card, UPI, or bank transfer.

Journal Entry Format:

• Debit: Cash / Bank (Asset)
• Credit: Service Revenue (Income)

Revenue is recorded when the service is provided, and cash increases as payment is received.

Example – Service Sale (Cash Payment)

Scenario:

A business provides consulting services worth ₹15,000, and the customer pays in cash.

Journal Entry:

Key Points:

• Service revenue increases income for the business.
• Cash (Asset) increases as payment is received.
• Helps track service-based earnings efficiently.

Service Sale (Revenue) – Credit Sale

When does this apply?

• Business provides a service to a customer.
• Customer buys on credit (agreed to pay later).

Journal Entry Format:

• Debit: Accounts Receivable (Asset)
• Credit: Service Revenue (Income)

Revenue is recorded when the service is provided, even if payment is received later.

Example – Service Sale (Credit Sale)

Scenario:

A business provides consulting services worth ₹20,000 on credit. The customer will pay later.

Journal Entry:

Key Points:

• Service revenue increases income, even though payment is pending.
• Accounts Receivable (Asset) represents the amount due from the customer.
• Helps track outstanding service payments and manage cash flow.