Where Did the Money Go? Understanding Expense Mapping and Your Chart of Accounts

In this episode of The Real Estate Connector, Kathy Wright and Jermaine E. Whiteside explore one of the most overlooked aspects of small business operations: understanding where your money actually goes.

Many business owners focus on revenue, bank balances, and tax filings, yet never develop a clear understanding of how transactions are categorized, how expenses are mapped, or how their chart of accounts influences financial reporting and decision-making.

Drawing from lessons learned during a recent financial systems review, Kathy shares her perspective as a business owner navigating the process of improving financial visibility and operational structure. Jermaine explains how expense mapping and chart of accounts design serve as the foundation for meaningful financial reporting, strategic planning, and long-term business stability.

The conversation highlights a common challenge faced by entrepreneurs: assuming financial systems are working properly without understanding the structure behind them.

This episode is not about accounting theory—it is about helping business owners gain practical insight into the systems that drive financial clarity.

In This Episode

•  What expense mapping means and why it matters 
•  Understanding the purpose of a chart of accounts 
•  Why transaction categorization impacts business decisions 
•  Common bookkeeping challenges facing small businesses 
•  The relationship between operational activities and financial reporting 
•  Why communication with accounting professionals is critical 
•  Lessons learned from improving financial visibility 
•  How better organization creates stronger businesses 

Key Takeaway

Financial clarity does not happen automatically. It requires structure, communication, and a deliberate understanding of how money moves through your business.

Featured Quote

"Every transaction tells a story. The question is whether your financial system is telling the right one."

About The Real Estate Connector

Hosted by Kathy Wright, The Real Estate Connector brings together entrepreneurs, real estate professionals, attorneys, and business leaders to discuss practical strategies for building stronger businesses, creating operational stability, and developing long-term wealth.

Disclaimer

This podcast is intended for educational and informational purposes only and should not be considered legal, accounting, tax, or financial advice. Listeners should consult qualified professionals regarding their specific circumstances.

Transcript

SPEAKER_01 0:02

Welcome back to the real estate connector. We're now on episode four of season two, and each episode has been building on the last.

SPEAKER_00 0:14

Well, in episode one, Kathy shared her transformation journey. Episode two was about cash flow and awareness. In episode three, introduce financial visibility framework. Today we're going to go deeper into expense mapping and the chart of accounts. This the question we're answering today is where did the money actually go? And more importantly, does your accounting system tell the right story?

SPEAKER_01 0:47

Yes, so when it was brought to my attention that although I knew what the chart of accounts were, my accountant at the time never questioned me about them or validated them or confirmed them with me. So we don't even know with the previous tax returns how accurate that might be.

SPEAKER_00 3:41

Same idea with bullion, $186. Is this a software expense? Is it a property management technology? Is it administration? The answer tells a different story each time. This is why expense of uh mapping matters. Without every transaction, it's a guess. And without expense matching, think about it from your bookkeeper who is seeing this, who's not in your office, uh seeing these transactions.

SPEAKER_01 4:13

Yes, and some of the um mapping or categories I was used to using, because I have multiple care categories, it may not have translated into the accounting world for the taxes. So now I have to some of these designations have to be rewarded to be correct. So I have to do a little change so that my accountant understands it and we can move ahead accordingly.

SPEAKER_00 4:46

Yeah, you know, introducing this concept and reframing it immediately. Most owners hear chart of accounts and they immediately tune out. Let me frame it differently for you. Think of your chart of accounts as a filing cabinet for your business. Your business has four main drawers revenue, expenses, liability, and assets. Every single transaction that flows through your business must go in the correct drawer. Walk through each drawer. Let's look through each drawer and explain them. So we look at on this slide the revenue drawer. And Kathy said that's management fees, leasing fees, late payment, application income. Expense drawer, payroll, insurance, software, marketing, liability drawer, security deposits held, owner funds, loan balances, asset drawer, operating cash, trust account funds, receivables, and equipment. If a transaction lands in a wrong drawer, your financial reports tell a wrong story. And the decisions made from the wrong story leads to the wrong outcomes.

SPEAKER_01 6:10

Yeah, so um I had like absolutely no idea how much structure actually existed behind the scenes, which would needed to be more structured, and we started mapping everything. And then these items uh they became more clear to me what I needed to do.

SPEAKER_00 6:33

And that's that's so and that's so true. And and you see the results of as you learn those drawers, how uh it has you have a different uh outcome of thinking as it relates to your business, uh, as it relates to those four four types of transactions. So most businesses deal with two types of money: money coming in and money going out. Property management deals with four. Let's walk through each bucket in this slide for company money, management fees. This is Apple at Applewood's annual revenue. This is what pays the bills. Owner's money, rent collected. This money belongs to property owners. Applewood is holding in trust, it's not income. Tenant money, security deposits, held pending the terms of the lease. This is a liability, not revenue. Maintenance uh vendor money, maintenance payments collected through pass through contractors, never Applewood money. These four types of money can arrive in the same bank account in the same day. If it's not mapped correctly, you're creating a potential compliance problem under South Carolina Code 4057-135. Mingling these funds are serious violation.

SPEAKER_01 7:59

Yeah, this is one of the most important things I've learned. Not all the money in my account belongs to me. So when I went to school, I was told or taught that you have two accounts, you have the operating account and you have the escrow account for security deposits. I that's all I had. So I was milli putting all my a lot of my deposits into one account and trying to maintain everything, meaning the repairs, the owner payments, the tenant reimbursements, or anything that I needed to do was all coming from the same account. And that's where I was, you know, not doing well or doing it the right way. So now we are restructuring everything so that I will not have any other issues moving forward.

SPEAKER_00 8:48

Yes, and see what they did, it called it causes that confusion. Now Cathy Kathy uh CPA having to figure out and go in and categorize. Oh, hey, these are rent payments that goes categorized uh here. Uh this got to be transferred uh to, and by not having that separate trust account for just rent payments and not just your deposits, the compliance issue, as Kathy said, was correct in her understanding of her training, the security deposit uh that trust account uh was everything. It was supposed to be rents and security deposits. From an efficiency standpoint, and let's talk from a bookkeeper standpoint, it's just cleaner to have one account for all of your security deposits. So when you're reconciling that account, you see nothing but deposits. Easy to go into that, one of those four buckets. Now, rent deposits now in a new system has its own trust account. Nothing goes in there but rent deposits, and only thing comes out of there is management fees and reimbursements. So now just by structuring, we go back to when we talked about the structure of your bank accounts. By adding that additional bank account, you just added structure to your accounting. And by knowing your mapping, hey, this money comes in, it's gonna go in this bank account. You just streamlined your bookkeeping and understanding for your CPA and your accountant. Yeah. What did you think, Kathy?

SPEAKER_01 10:24

Yeah, but this is exactly what we uh I was dealing with, and you're dealing with to help me get it structured proper properly. The bulk depot deposits that look like revenue but weren't at all revenue. So things that were coming in were being assumed that there was revenue when it in essence was not. So and other things that were revenue weren't being classified properly. So there was a lot of a lot of issues going on with this whole situation.

SPEAKER_00 10:54

Yes, and let's let's make this concrete. Let's take an example of a $15,000 deposit that hits your bank account. One line the bank is happy. It's really happy. It's got if it's it's recorded deposit. But inside that deposit are likely rent collection, management fees, security deposit, late fees, and owner reimbursement all at once. Each of those belongs in different places in your accounting system. Rent collections are not your money, security deposits are not your money, and only management fees and late fees belong to Applewood.

SPEAKER_01 11:29

Exactly. Now I know that.

SPEAKER_00 11:41

All three together tell the complete story. And one of them alone is incomplete. So let's go back again to my recommendation for businesses. And one of the easy fixes of if you got these four categories, develop four bank accounts. Now the bank loves me saying that because they got four bank accounts, but we're talking about saving you and streamlining your accounting system. I used to tell Cash uh clients just 20 plus uh 30 plus years ago, I said, one of the things you need to always understand, if you take all of your deposits from your bank accounts, from your bank statements, and at the end of the year those deposits say 100 grand, and you take all of your expenses, all your withdrawals say 90 grand. I used to decline as you make sure that when you're looking at your tax returns, it reflects that uh close to that amount. That should give you your your your uh I call it snapshot of your uh profit loss at the end of the year just by your bank account. So by using bank accounts for those four buckets, it helps the bookkeeper. Uh now when he's reconciling, he knows hey, I'm only reconciling security deposits. Great, here's your report. I'm only reconciling rent payments, here's your report. In the operating account, I'm only uh uh dealing with the uh Applewood expenses.

SPEAKER_01 13:18

Right. Um basically, um when I had my CPA and bookkeeper, I realized I had to be the one who understood what was happening in my own business. And I didn't. I thought I did, but I really didn't.

SPEAKER_00 13:38

And these professionals are only good as the information they receive. The owner is the primary source. You gotta treat your bookkeeper and account just like your doctor. You go into your doctor, the doctor can't really diagnose you, so you tell him, hey, this is the symptoms, this was wrong with me, and then he he starts to diagnose that.

SPEAKER_01 13:59

Right. Um because we when we started documenting everything, not just the amount, what it was for, but for each property, which vendor, and everything else that we needed to do. Um sorry, go ahead.

SPEAKER_00 14:19

No, I was just saying that that transaction without context becomes a guess. Your financial reports is built on we could be built on guesses. But go ahead.

SPEAKER_01 14:29

Um, I can make now make decisions that I couldn't make before because I can actually see the numbers clearly and understand what's going on. So um it's quite a relief because you know I used to be asked by people what's your PL, and I couldn't even answer that. But now I'll be able to do that, which is most business owners should be able to do that.

SPEAKER_00 14:52

And that's a good and I used to tell um uh my uh clients years ago, you need to know your PL monthly, and I came up with a formula uh years ago uh to make it kind of simple, is you calculate that PLL to daily. Every day, uh you know you have a number for the day. That number, my revenue for the day is $150. My expenses for the day is $95. So uh you know those as you take that fee and uh profit loss in the month, you do the dividing by 30 days, and then you have that number in the back of your mind that look, okay, I need to make $150 a day to make that to make that up. So that is very important in understanding the mechanics that come up with that POL. Delivering, uh as most people think, bookkeeping means entering transactions to a software. That's what they think. Have a bookkeeper put some quick books together, and that's the only understanding. Let's walk through four questions. What happens from the bookkeeping standpoint? Uh, the bookkeeping, what happened? Who was paid? How much is when? Why did it happen? Why is the business? What is the business purpose? Which property, which project, what where does it belong? What account in the chart of accounts? The drawer in the filing cabinet. Remember those four buckets we talked about? How does this affect profit? Is this an expense to reduce profit? Is it a liability? Is it a pass-through? When your team can answer all four questions, every transaction, your books is telling the truth, and when your boots is telling the truth, you can make confident decisions.

SPEAKER_01 16:49

Exactly. I do wish now that someone had explained it to me this way years ago, but unfortunately that didn't happen. Sometimes you have to go through this rough stuff to understand how important it is in the long run.

SPEAKER_00 17:07

Yes. You know, here's the question I want every listener to sit with after today's episode. If you handed my bank statements to a new bookkeeper tomorrow, would they understand what every transaction actually represents? If the answer is yes, your expense mapping is working, your chart of accountant's doing its job. If the answer is no, that's not a failure. That's a starting point. Because this is flex fixable and it's absolutely worth fixing.

SPEAKER_01 17:41

Yes. So um the question that stopped me in my tracks when I first heard about this was because I the answer for me was no. And it told me exactly where we all needed to start.

SPEAKER_00 17:54

The goal isn't perfect bookkeeping, the gold is an honest picture of your business. And why is that honest picture important? Because this is how you make those financial decisions. If we make financial decisions and we have no empirical evidence of our finances, it's a disconnect. And a lot of businesses miss the most important out of that proper law statement really is a cash flow statement every month. Really truthfully, uh, one of the requirements we should talk to our bookkeepers hey, can we can you run me a cash flow analysis going in here? Like say in Kathy's case, and before we end this, Kathy receives her our management fee monthly. So any expenses or any pay cycles that within that month is going to put an import on uh monthly cash flow. So we need to really understand when we make decisions, I'm on a 30-day cycle on receiving revenue. Anything else that I do under a 30-day cycle will impact that uh cash flow.

SPEAKER_01 19:02

Yeah, exactly. Um I want to thank everybody so much for being here for this episode. This was really uncomfortable part for me and personal, but because everything we talked about today is exactly what we've been working through. So we wanted to pass on this experience to people with business owners who don't realize how important this needs to be.

SPEAKER_00 19:33

So true, so true. We've been on a journey this season. Uh episode one asks where my money. Episode two asks why it matters. Episode three asks how it moves. And today we ask how it should be classified. Each episode in this series will build on a last, and it's reflective of a real-time live project that Kathy is going through, the restructuring of her financial system. The next episode will be talking about hidden cost of disorganization, missing documents, vendor confusion, poor filing system, the real risk that it creates. Whether it's an audit, a tax question, or a compliance issue, the cost of disorganization is always higher than the cost of the system. Don't miss it.

SPEAKER_01 20:25

There's a lot gonna be that we're gonna go through. So stay tuned for the next episode.