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Brokerage Standards Manual

XI. Appendix

Rental Property Management Examples

DEF Rental Property Management Ltd. is a newly licensed rental property management company under RESA.

This case will show how DEF Rental Property Management Ltd. records all its trust transactions and maintains its trust accounting books and records in accordance with general trust accounting principles and RESA.

Please note that this case is for a manual accounting system. The brokerages with computerized accounting systems will have most of the following Exhibits automated.

EXHIBIT VII

TRUST FUNDS RECEIVED AND DISBURSED

Case facts:

  • three properties are being managed;
  • one rental property management pooled trust account is maintained;
  • rents are collected at the beginning of the month;
  • rental property expenditures are paid during the first 14 days of the month;
  • net rental amounts are paid on the 15th of the month to ensure that tenant cheques or electronic deposits have cleared their accounts; and
  • the management fee charged is 10% of gross rental receipts – for the purpose of this example, GST is included in the 10% of gross rental receipts.

TRUST FUNDS RECEIVED

Rental Property

Description

Date Deposit Received

Date Deposited to Bank

Receipt
(Pre-
numbered)

Amount

# 1

Rental receipt

January 1, 2008

January 2, 2008

# 1

$ 500.00

# 2

Rental receipt

January 2, 2008

January 3, 2008

# 2

$ 550.00

# 3

Rental receipt

January 2, 2008

January 3, 2008

# 3

$ 600.00

In accordance with section 27 of RESA, DEF Rental Property Management Ltd. has ensured that all the trust funds received were deposited promptly into a pooled trust account. Please note the date the trust funds were received and the date the trust funds were deposited to the bank. The brokerage is required to deposit trust funds “promptly” upon receipt.

To assist their accountant in preparing the annual Accountant’s Report, DEF Rental Property Management Ltd. has recorded references, such as the tenant name or rental property address, on the deposit slip and clearly indicated whether the rent payment was paid by cash, cheque, or electronic deposit.

As there are no provisions in RESA which permit a brokerage to maintain non-trust funds in a trust account, DEF Rental Property Management Ltd. has ensured that it did not deposit non-trust funds or maintain a cash float in the trust account.

TRUST FUNDS DISBURSED

Rental Property

Description

Date Funds Disbursed

Date Cleared Bank

Cheque #

Amount

# 1

Hydro payment

January 10, 2008

January 16, 2008

# 1

$ 100.00

# 1

Management fee

January 15, 2008

January 20, 2008

# 2

$ 50.00

# 1

Net rent paid to owner

January 15, 2008

January 17, 2008

# 3

$ 350.00

# 2

Repair

January 14, 2008

February 2, 2008

# 4

$ 250.00

# 2

Management fee

January 15, 2008

January 20, 2008

# 5

$ 55.00

# 2

Net rent paid to owner

January 15, 2008

January 16, 2008

# 6

$ 245.00

# 3

Management fee

January 15, 2008

January 18, 2008

# 7

$ 60.00

# 3

Net rent paid to owner

January 15, 2008

February 2, 2008

# 8

$ 540.00

 

EXHIBIT VIII

TRUST JOURNAL

The trust journal records all receipts and all disbursements with reference to the rental property number, a description of the transaction, the receipt or cheque number, the amount of the receipt or disbursement and a running balance of the pooled trust account.

Description

Rental Property

Date

Amount
Received

Receipt
(Pre-
numbered)

Amount
of Disb.

Cheque

Trust
Balance

Balance Forward

           

$ 275.00

Rental Receipt

# 1

January 1, 2008

$ 500.00

# 1

-

-

$ 775.00

Rental Receipt

# 2

January 2, 2008

$ 550.00

# 2

-

-

$ 1,325.00

Rental Receipt

# 3

January 2, 2008

$ 600.00

# 3

-

-

$ 1,925.00

Hydro Payment

# 1

January 10, 2008

-

-

$ 100.00

# 1

$ 1,1825.00

Repair Bill

# 2

January 14, 2008

-

-

$ 250.00

# 4

$ 1,575.00

Net rent sent to owner

# 1

January 15, 2008

-

-

$ 350.00

# 3

$ 1225.00

Net rent sent to owner

# 2

January 15, 2008

-

-

$ 245.00

# 6

$ 980.00

Net rent sent to owner

# 3

January 15, 2008

-

-

$ 540.00

# 8

$ 440.00

Management Fee Charged

# 1

January 15, 2008

-

-

$ 50.00

# 2

$ 390.00

Management Fee Charged

# 2

January 15, 2008

-

-

$ 55.00

# 5

$ 335.00

Management Fee Charged

# 3

January 15, 2008

-

-

$ 60.00

# 7

$ 275.00

DEF Rental Property Management Ltd. has ensured that trust funds received and disbursed (see Exhibit VII) were recorded in the trust journal for appropriate and timely accounting.

DEF Rental Property Management Ltd. has also ensured that the general accounts were updated for appropriate and timely accounting.

To assist their accountant in preparing the annual Accountant’s Report, DEF Rental Property Management Ltd. has recorded references on the cheque and the receipt, such as the rental property address and/or name and invoice # for supplier.

EXHIBIT IX

INDIVIDUAL TRUST LEDGERS

The individual trust ledgers include a separate ledger for each individual rental property management client which lists the various transactions that occur with that particular client. The record for each rental property management client contains all of the receipts and disbursements which take place with this client.

DEF Rental Property Management Ltd. has ensured that trust funds received and disbursed (see Exhibit VII) were recorded in the Individual Trust Ledgers on a daily basis, as was done on the Trust Journal (see Exhibit VIII).

DEF Rental Property Management Ltd. has also ensured that individual client ledgers were reproduced monthly and distributed to rental property owners as “monthly financial statements” which show the flow of client trust receipts and disbursements.

DEF Rental Property Management Ltd. has also forwarded a copy of the expenditure invoice(s) to rental property owners to support all disbursements.

Description

Date

Receipt

Trust Receipt

Cheque

Trust Disbursement

Balance

Rental Property # 1

Carry forward

       

$ 100.00

Rental receipt

January 1, 2008

# 1

$ 500.00

-

-

$ 600.00

Hydro payment

January 10, 2008

-

-

# 1

$ 100.00

$ 500.00

Management fee

January 15, 2008

-

-

# 2

$ 50.00

$ 450.00

Net rent paid to owner

January 15, 2008

-

-

# 3

$ 350.00

$ 100.00

Description

Date

Receipt

Trust Receipt

Cheque

Trust Disbursement

Balance

Rental Property # 2

Carry forward

       

$ 75.00

Rental receipt

January 2, 2008

# 2

$ 550.00

   

$ 625.00

Repair payment

January 15, 2008

-

-

# 4

$ 250.00

$ 375.00

Management fee

January 15, 2008

-

-

# 5

$ 55.00

$ 320.00

Net rent paid to owner

January 15, 2008

-

-

# 6

$ 245.00

$ 75.00

Description

Date

Receipt

Trust Receipt

Cheque

Trust Disbursement

Balance

Rental Property # 3

Carry forward

       

$ 100.00

Rental receipt

January 2, 2008

# 3

$ 600.00

-

-

$ 700.00

Management fee

January 15, 2008

-

-

# 7

$ 60.00

$ 640.00

Net rent paid to owner

January 15, 2008

-

-

# 8

$ 540.00

$ 100.00

At the end of each month, DEF Rental Property Management Ltd. has ensured that a Trust Liability Reconciliation (see Exhibit XII) is made of the remaining balance (if any) on each individual trust ledger. In order to ensure that all the transactions have been recorded correctly, DEF Rental Property Management Ltd. has confirmed that the total of these individual trust ledgers agrees with the total in the Trust Journal.

EXHIBIT X

RENTAL PROPERTY MANAGEMENT BANK STATEMENT

This is a sample of a trust bank statement that would be received by the brokerage from the bank each month for each pooled trust account held for the brokerage.

Please note that section 30 of RESA prohibits the withdrawal of service charges from a pooled trust account and section 29 requires that interest on a pooled trust account is forwarded to the Real Estate Foundation of BC.

If, however, the agent maintains a specific trust account for security deposits in order to ensure that the interest earned will be paid to the tenant, this account would not be subject to the requirements of section 29(2).

Bank of British Columbia 
Account # 45678 
Bank Statement as at January 31, 2008

DEF Rental Property Management Ltd.
Trust Account (Rental Property Management)

Transaction Details

Date

Description

Amounts debited from your account ($)

Amounts credited to your account ($)

Balance($)

Business Current Account #45678

Account type: POOLED RENTAL TRUST

Business name:

DEF Rental Property Management Ltd.

         

January 1, 2008

Opening balance

   

$ 275.00

Jan 2

Deposit

$ 500.00

-

$ 775.00

Jan 3

Deposit

$ 550.00

-

$ 1,325.00

Jan 3

Deposit

$ 600.00

 

$ 1,925.00

Jan 16

Cheque, NO. 001

 

$ 100.00

$ 1,825.00

Jan 16

Cheque, NO. 006

 

$ 245.00

$ 1,580.00

Jan 17

Cheque, NO. 003

 

$350.00

$ 1,230.00

Jan 18

Cheque, NO. 007

 

$60.00

$ 1,170.00

Jan 20

Cheque, NO. 002

 

$50.00

$ 1,120.00

Jan 20

Cheque, NO. 005

 

$55.00

$ 1,065.00

Jan 31

Closing totals

$ 1,650.00

$860.00

$ 1,065.00

DEF Rental Property Management Ltd. has reviewed the rental property management trust bank statement to ensure that:

  • the information displayed is accurate (agrees to all bank deposit slips and cancelled cheques);
  • no service charges have been withdrawn from the trust account; and
  • the bank has forwarded the interest earned on the trust account to the Real Estate Foundation of BC.

EXHIBIT XI

RENTAL PROPERTY MANAGEMENT

TRUST BANK RECONCILIATION

DEF Rental Property Management Ltd. has ensured that the monthly trust bank reconciliation(s) were prepared no later than five weeks after the monthly accounting cut-off date for the accounts or immediately on receipt of the trust bank statement(s). Section 7-4(2) of the Rules requires that for each trust account of a brokerage, the monthly reconciliations and the monthly trust asset and liability reconciliations must be reviewed, dated, and initialed by a related managing broker or by a person designated by a related managing broker.

Balance Per Bank Statement as at January 31, 2008
(This balance is taken from the bank statement shown above.)

$ 1,065.00

Add: Outstanding Deposits
(Note: Deposits made before the end of the month per the Trust Journal but which are not yet shown on the bank statement should be entered here.)

0

Subtotal

$ 1,065.00

Less: Outstanding Cheques
(Note: Cheques written before the end of the month per the Trust Journal but which have not yet cleared the account should be entered here.)

0

Cheque #

Date

Amount

 

4

January 14, 2008

$ 250.00

 

8

January 15, 2008

$ 540.00

$ 790.00

Adjusted Balance Per Bank as at January 31, 2008 
(This amount should agree with the balance on the trust journal [Exhibit VIII] and the trust liability reconciliation [Exhibit XII] at the end of the month)

$ 275.00

 

EXHIBIT XII

RENTAL PROPERTY MANAGEMENT

TRUST LIABILITY RECONCILIATION

The trust liability reconciliation is a summary of each individual outstanding client ledger (per Exhibit IX).

DEF Rental Property Management Ltd. has ensured that the monthly trust liability reconciliation(s) were prepared no later than five weeks after the monthly accounting cut-off date for the accounts or immediately on receipt of the trust bank statement(s).

DEF Rental Property Management Ltd. has also ensured that the total trust funds in the trust liability reconciliation(s) agree to the adjusted bank balance (see Exhibit XI).

Rental Property #

Trust Funds

1

$ 100.00

2

$ 75.00

3

$ 100.00

Total

$ 275.00