Airbnb Investing: An Accounting Guide for Xero

Airbnb Investing Accounting in Xero

Who should read this guide?

This is an accounting guide for those who own one or more Airbnb investment properties and who use Xero accounting software. Airbnb investing is a business model where an operator purchases one or more properties and offers them on Airbnb for the purpose of building equity much faster than a traditional rental business. As such, the Airbnb investment business model thrives in markets where Airbnb short-term income potential is far higher than local long-term rental prices. However, there are decisions to be made in your accounting process. Keeping a close eye on your numbers will make a great difference in navigating the success of your ongoing operations. In this guide, we’ll be focusing on accounting for all income received by Airbnb from an investor perspective, including how to automate Airbnb revenue accounting using Xero.

USING QUICKBOOKS? READ THIS ARTICLE INSTEAD

NOTE: This guide only covers Airbnb revenue accounting, not costs. For a guide about Airbnb costs and chart of accounts to consider, check out this guide instead: Airbnb Costs and Chart of Accounts to Consider

Table of Contents

Here’s what you’ll get from this guide:

  1. A template for Xero with detailed chart of accounts for an Airbnb investment
  2. Learn how to automate Airbnb investment accounting with Bnbtally
  3. Execute common transaction workflows in Xero
  4. Generate monthly reports for you and your firm

Cash Flow Diagram

Airbnb Investing Cash Flow Diagram

Who should not read this guide?

There are other business models that may be more suitable in your particular scenario, which are covered better in the following guides:


Airbnb Investing: Xero Chart of Accounts for Airbnb Income

Here we’ll describe our Xero chart of accounts template for Airbnb income in great detail:

Account Codes

No. AccountType
24200Rental Liability – Airbnb Custom Taxes PayableLiability
42100Rental Revenue – Airbnb Income – Accommodation FareRevenue
42200Rental Revenue – Airbnb Income – Cleaning FeeRevenue
42300Rental Revenue – Airbnb Income – Resolution AdjustmentRevenue
42400Rental Revenue – Airbnb Refund – Accommodation FareRevenue
42500Rental Revenue – Airbnb Refund – Cleaning FeeRevenue
42600Rental Revenue – Airbnb Refund – Resolution AdjustmentRevenue
51100Rental Costs – Airbnb Service FeeCost of Service
61100Airbnb Tax WithholdingsExpense

NOTE: In this guide, we only cover income accounting, not costs. For a guide about Airbnb costs and chart of accounts to consider, check out this guide instead: Airbnb Costs and Chart of Accounts to Consider

Detailed Explanation of Accounts

To learn more about each specific account code, we’ve listed each definition here:

Rental Liabilities

24200 – Rental Liability – Airbnb Custom Taxes Payable – This represents all Custom Taxes collected from Airbnb and payable to a tax authority.

Rental Revenues

42100 – Rental Revenue – Airbnb Income – Accommodation Fare – This account tracks the accommodation fare portion of each Airbnb reservation. The accommodation fare is equal to the number of nights multiplied by the average nightly rate of each reservation.

42200 – Rental Revenue – Airbnb Income – Cleaning Fee – This account tracks the cleaning fee portion of each Airbnb reservation.

42300 – Rental Revenue – Airbnb Income – Resolution Adjustment – This account tracks any resolution adjustments collected from Airbnb.

42400 – Rental Revenue – Airbnb Refund – Accommodation Fare – This account tracks accommodation fare refunds executed by Airbnb.

42500 – Rental Revenue – Airbnb Refund – Cleaning Fee – This account tracks cleaning fee refunds executed by Airbnb.

42600 – Rental Revenue – Airbnb Refund – Resolution Adjustment – This account tracks resolution adjustment refunds executed by Airbnb.

Rental Costs

51100 – Rental Costs – Airbnb Service Fee – This account tracks service fee costs from Airbnb for each reservation, which is subtracted from the income.

61100 – Airbnb Tax Withholdings – This account tracks any taxes withheld by Airbnb for income tax obligations. This is very rare and usually due to the Airbnb account holder lacking tax identification information. Ideally, this account should not contain any balance and is seldom (if ever) used. To avoid income tax withholdings from Airbnb, be sure to update your Airbnb account with your tax identification information and verify your account.

Accounts not included in this template

For the scope of this guide, we’re mainly focused on Airbnb revenue recognition. It is important to point out that our template does not include many general accounts. We also make reference to some accounts not included in this particular template, which we’ll list here:

  • 11000 – Airbnb Payment Clearing Account – This account is created by Bnbtally but is not included in this template in particular. This account is used to apply payments to Airbnb invoices upon the day the Airbnb reservation payout is posted. Payouts can take 3-5 days (or longer) to arrive in the bank account after posted from Airbnb. Monies owed are held in this clearing account until the payouts are received in the bank. This account also helps to automate the reconciliation process in Xero.
  • 1XXXX – Operations Bank Account – This is your business operations bank account set up with your financial institution. It’s a cash asset account to facilitate your Airbnb Arbitrage day-to-day business operations.
  • 2XXXX – Mortgage Principal – This account is a long-term liability account used to track the mortgage loan principal owed.
  • 7XXXX – Mortgage Interest – This account is an expense account and is used to track the interest payments of the mortgage loan.

Quick Setup Steps

Here’s how to import the above chart of accounts template. The chart of accounts discussed in this article can be imported into Xero automatically using Bnbtally’s setup tools. Here’s how to access this utility…

  1. If you haven’t already, Sign Up to Bnbtally. It includes free use of this template.
  2. Once registered, go to the Connections manager in Bnbtally. Connect your Airbnb account, connect your Xero account and then create a connection between the two.
  3. Within the Connection settings, select “Set Up Xero”

How to Automate Airbnb Revenue Accounting

Airbnb has the potential to turn into a major source of revenue for many property investors. With Bnbtally, it’s never been easier or more convenient to automate the reconciliation of your Airbnb reservations in Xero. In the following section, we’ll go over how to automate the revenue of Airbnb investment properties, including chart of account setup and preset configuration.

Bnbtally Listing Presets

The Bnbtally team has created an easy-to use interface to help you manage your Airbnb listings. Once connected with Xero, the system will guide users through setting up accounting rules for each listing so they can be optimized quickly and efficiently.

Explanation of Preset Lines

In this business model, everything collected from Airbnb is yours. This includes the accommodation fare, cleaning fee, Airbnb service fee (subtracted), any resolution adjustments, custom taxes (optional) and any tax withholdings (if they exist)

Airbnb Price Item%Account
Accommodation Fare100%42100 – Rental Revenue – Airbnb Income – Accommodation Fare
Cleaning Fee100%42200 – Rental Revenue – Airbnb Income – Cleaning Fee
Airbnb Service Fee100%51100 – Rental Costs – Airbnb Service Fee
Resolution Adjustment100%42300 – Rental Revenue – Airbnb Income – Resolution Adjustment
Custom Taxes100%24200 – Rental Liability – Airbnb Custom Taxes Payable
Tax Withholdings100%61100 – Airbnb Tax Withholdings
Example Reservation

Let’s say you have Bnbtally set up for this listing using the preset settings above. Let’s say Airbnb sends a payout for a current reservation with the following itinerary price items:

  • Accommodation Fare: $1348
  • Cleaning Fee: $185
  • Airbnb Service Fee: -$54
  • Airbnb Transient Occupancy Taxes: $211
  • Reservation Total: $1690

Bnbtally accounts for all the income received by Airbnb, separating out each price item. The total amount to be received from Airbnb for this reservation is $1690, which is allocated to the Airbnb Payment Clearing Account to be later reconciled against the resulting bank deposit.

AccountDebitCredit
42100 – Rental Revenue – Airbnb Income – Accommodation Fare$1348
42200 – Rental Revenue – Airbnb Income – Cleaning Fee$185
51100 – Rental Costs – Airbnb Service Fee$54
24200 – Rental Liability – Airbnb Custom Taxes Payable$211
11000 – Airbnb Payment Clearing Account (Asset)$1690

On the date the reservation payout is received from Airbnb into your Operations Bank Account (3-5 days later), a bank rule in Xero can automatically reconcile the amount back to the Airbnb Payment Clearing Account:

AccountDebitCredit
1XXXX – Operations Bank Account$1690
11000 – Airbnb Payment Clearing Account (Asset)$1690

Set Invoice Customer & Class Categories

The best way to manage your guests in Xero is by creating a general contact in Xero for these transactions, we recommend calling it “Airbnb Guests”. However, if you prefer, you can set the guest as the contact in Bnbtally. In such case we’ll create each guest as a contact in Xero and will set them as the customer of the invoice for each reservation.

If you have more than one listing, you’ll also want to create a tracking category for each listing in Xero, many users will literally name the tracking category “Investment Property – ” followed by the address of the listing. See below example:

Automate Additional Bills & Invoices (Optional)

With Bnbtally, you’re also able to automate the creation of additional bills and invoices for each reservation. Consider the following:

  • Create a bill for each reservation to automate amounts payable to a tax authority.
  • Create a bill for each reservation to automate amounts payable to a cleaning service for turnover of each reservation.
  • Create additional invoice for each reservation to automate amounts receivable by any third party.

Quick Setup Steps

All of the above settings can be quickly set up using Bnbtally’s presets for your listings. Here’s how to set up these presets…

  1. If you haven’t already, Sign Up to Bnbtally.
  2. After logging into Bnbtally, set up your connections, then go to Listing Rules.
  3. Select any listing you’d like to automate that hasn’t already been set up.
  4. Select “Load Presets”.

From here, presets will be loaded as your listing accounting rules and you can edit as needed.


Airbnb Investment: Common Transaction Workflows in Xero

In this section, we explore the nuances of Airbnb investment property transactions. The most common workflows for investors are outlined below:

Making a Mortgage Payment

A common transaction workflow to identify is paying your mortgage, which includes a principal amount plus interest.

Example Transaction

You, the Airbnb investor, are making a mortgage payment in the amount of $2134, whereas $421 of which is considered interest. This is for the property located at 741 Peacock Ave through a recurring bank transaction which happens monthly. Once the transfer is posted and complete, reconcile the outgoing transaction from the Operations Bank Account using the following entry:

DebitCreditTracking Category
1XXXX – Operations Bank Account (Asset)$2,134Investment – 741 Peacock Ave
2XXXX – Mortgage Principal$1,713Investment – 741 Peacock Ave
7XXXX – Mortgage Interest$421Investment – 741 Peacock Ave

1. Create a Recurring Bill

ContactAccountDescriptionAmountTracking Category
Mortgage Company2XXXX – Mortgage Principal“Mortgage Principal Payment”$1,713Investment – 741 Peacock Ave
Mortgage Company7XXXX – Mortgage Interest“Mortgage Interest Payment”$421Investment – 741 Peacock Ave

2. Pay the Bill

Pay the Bill directly in Xero or reconcile the Bill against the payment made in your bank feed.

Remitting Custom Taxes

In most regions, Airbnb collects transient occupancy taxes and remits them to local tax authorities on your behalf. If this is your case, this section doesn’t apply to you. However, many Airbnb investors opt to receive taxes from Airbnb and pay their tax authority directly, which gives them more control over their funds. In this case, if you’re using Bnbtally, the Custom Taxes line item found in your presets will take care of collecting these taxes. This means all you would need to do is pay your tax authority what’s owed to them from what has been collected. We’ll go over this here:

Example

The listing, 741 Peacock Ave, is set up on Airbnb to receive custom taxes for all reservations. In Bnbtally, these amounts are allocated to “24200 – Rental Liability: Airbnb Custom Taxes Payable”. After running a balance sheet report on this listing in Xero, you see that $350 is owed for transient occupancy taxes.

First, you’ll need to send your payment to the tax authority either via bank transfer, ACH, check or other means. Once the transaction is posted and complete, record the outgoing transaction from the Operations Bank Account using the following entry:

DebitCreditTracking Category
1XXXX – Operations Bank Account (Asset)$350Investment – 741 Peacock Ave
24200 – Rental Liability – Airbnb Custom Taxes Payable$350Investment – 741 Peacock Ave

1. Check how much exists in the Custom Taxes Payable account for the property

The amount that needs to be paid to the tax authority can be found in the balance sheet. Filtering the balance sheet by the tracking category for each listing, look up the total amount under “24200 – Rental Liability: Airbnb Custom Taxes Payable”.

2. Create Bill

ContactAccountDescriptionTracking Category
Tax Authority24200 – Rental Liability – Airbnb Custom Taxes Payable“Taxes Paid: 11% City TOT”Investment – 741 Peacock Ave
  • Set the contact of the bill to the name of the tax authority
  • Set the Account to “24200 – Rental Liability – Airbnb Custom Taxes Payable”
  • Set a detailed description, starting with “Taxes: ” and describe the tax
  • Set the tracking category to the listing

3. Transfer the amount from your operations bank account to the tax authority

Send the money via bank transfer, ACH, check or other means.

4. Reconcile operations bank account statement line amount with bill

Reconcile the bill with the bank feed in Xero


Monthly Reporting of Airbnb Investments

Now that your reservation data is automatically processed from Airbnb and perfectly synced into Xero, you’ll be able to produce beautiful monthly reports of your Airbnb investments. After you’ve reconciled any expenses, you can then observe the performance of each listing in detail.

Profit & Loss by Listing

This report is for those who want to compare how their Airbnb Arbitrage listings are performing against each other. It can be found under the Xero left menu label “Reports”. From there, look for “Profit and Loss”. From here you want to edit the layout. Add a column and set the listing for each column you’d like to track. The profitability of each listing for your Airbnb Arbitrage operations can be viewed in this report – the most profitable listings will be clear.

Airbnb Investing QuickBooks Profit and Loss by Class Report

Conclusion

In the right climate and in the right location, Airbnb can be an amazing way to build equity quickly in your investment properties. The accounting method discussed in this article provides a great deal of transparency into the success of your Airbnb investment operations. We hope that you’ve received great value from this guide as you build up your real estate portfolio. To begin automating Airbnb investment accounting today, check out our software here!

Finally, there are other business models that are not covered in this guide but are covered better in the following guides. Be sure to check these out: