Rental balance sheet

[Babu Byrapuneni]

Hi, I'm working on the balance sheet for my rental (multi-member LLC) and need help. Rental bought in 2023 and initial return.

For assets - Cash, depreciable assets less accum deprn, land

For liabilities - Open credit card balances (Charged rental improvements and expenses on 0% interest credit card)

Partnership equity - Cash contributions less net loss

My assets are greater than liabilities + partnership equity

[Kristen Ambrose]

Hi Babu,

A simple rental property balance sheet will have the following accounts:

Assets: Cash, tax and insurance escrow, fixed assets and depreciation

Liabilities: Credit cards, security deposits, and loans

Equity: Opening balance equity, owner's contributions/distributions, retained earnings and net income

There could be a number of reasons that your balance sheet does not balance. Here are the sample journal entries for the accounts you mentioned:
1. Owner cash contributions:

DR. Cash (Asset)

CR. Owner's contributions (Equity)

2. Purchase of property with cash:

DR. Building (Asset)

DR. Land (Asset)

DR. Closing Costs (Asset)

CR. Cash (Asset)

3. Credit card purchases 

DR. Rehab Expense (Expense, which contributes to NI within Equity)

or DR. Capital Improvements (Asset)

CR. Credit Card (Liability)

Your balance sheet starts off balanced, so each transaction should keep the accounting equation Assets = Liabilities + Equity true. Perhaps one of your transactions was booked incorrectly. Hope this helps!

[Babu Byrapuneni]

Thanks for your detailed response. I had to spend sometime digging into the cc and bank statements. The issue is now resolved. Appreciate your feedback.

Another question I have is related to Cashback from the business credit card. I read that CC cashbacks/rewards are not taxable, but should reduce the expenses allowed for deduction. So in the General expenses section, I just added a negative entry equal to the cashback, thereby reducing the expenses I can deduct. Does anyone see issue with this? People are generally referring to this type of entry as contra-expense or atleast that's how I interpreted.

In the PA tax return, this line item was highlighted in Red and hence the question

[Kristen Ambrose]

I typically book cashback credit card rewards as a DR. to Cash and a CR. to Other Income. The Other Income line should be below your Net Operating Income on your P&L and flagged as credit card rewards so it isn't taken into consideration for taxes. 

[Basit Siddiqi]

If you are using an accounting software, it is impossible for the assets to not agree with the equity / liabilities.

Did you factor in everything from the closing statement(such as pro-rated rent, closing costs, lender fees, etc)
Did you use a PM company, if you did, did you factor in incorporating the PM Statements.

Again, if you are using an accounting software, and factoring in all the transactions from your bank account / credit card, it should not be off.