Trust accounting is what a manager does with money that is not theirs. Rent belonging to an owner, deposits belonging to a tenant, and reserves belonging to an association all pass through a manager's hands, and in most states the rules for holding them come from the real estate licensing body rather than from accounting standards. That is why an error here is a different kind of error: not a misstatement, a compliance breach.
Separation is the whole rule
Client money lives in a designated trust or escrow account that holds no company money beyond whatever minimum balance the state permits to keep it open. Management fees come out of it by transfer after they are earned, never by leaving them in and netting at month end. The commonest failure is not theft, it is convenience: one account, one balance, and the belief that the arithmetic will work out because it always has.
The three-way reconciliation
Every period, three figures must agree: the bank balance, the sum of the individual owner and tenant ledgers, and the trust account's own book balance. Two out of three agreeing is the normal state of a broken system, and the one that is out tells you what went wrong. Any software sold for this should produce that reconciliation as one report. If it cannot, it is general ledger software with client money running through it.
What a negative ledger means
An individual owner ledger going negative means one owner's money paid another owner's bill, which is commingling even though the overall account balanced. This is the single most common finding in an audit, and it usually starts with a repair paid before the rent for that property arrived. The control is simple and unpopular: do not disburse against money you have not received.
Records and how long to keep them
Bank statements, cancelled items, receipts and disbursements journal, and the individual ledgers, held for the period the state names, which is commonly several years and is longer than most general business retention. A business is expected to keep books that support what it reported; a trust account is expected to keep records that show whose money was whose on any given day, which is a stricter test.
Questions people ask about property management trust accounting
Do deposits have to be in a separate account from rent?
In several states, yes, and in others they must at minimum be separately identified. Because the rule is set by state, check the state statute rather than a national summary.
Can trust account interest be kept by the manager?
Rarely, and where it is allowed it usually has to be disclosed in the management agreement. Several states direct it elsewhere entirely.
Is a spreadsheet acceptable for trust accounting?
Only if it produces the three-way reconciliation and per-client ledgers reliably. Most do not, and the failure is discovered during an audit rather than before one.