Real Estate Accounting Made Easy, 2nd Edition

About the Author xi

Preface xiii

Chapter 1 Introduction to Real Estate 1

Types of Real Estate Assets 1

Common Industry Terms 8

Chapter 2 Basic Real Estate Accounting 17

History of Double-Entry Bookkeeping 17

Types of Accounts 18

Accounting Methods 22

Recording of Business Transactions in the Accounting System 23

Journal Entries 24

Basic Accounting Reports 26

Chapter 3 Forms of Real Estate Organizations 39

Sole Ownership 40

Common and Joint Ownership 40

Partnerships 41

Joint Ventures 43

Corporations 44

Limited Liability Companies 45

Real Estate Investment Trusts 46

Chapter 4 Accounting for Operating Property Revenues 49

Contracts with Multiple Components 49

Lease Classification 50

Lessor Accounting of Operating Leases 51

Types of Operating Leases 52

Additional Cost Recoveries 57

Operating Expenses Gross-Up 58

Contingent Rents 59

Rent Straight-Lining 60

Modification of an Operating Lease 65

Sublease of Operating Lease 67

Chapter 5 Accounting for Operating Property Expenses 69

Lessee Measurement and Recording of Operating and Finance Leases 70

Contracts with Multiple Components 71

Lease Liabilities and Right-of-Use Assets 73

Initial Direct Costs 74

Lessee Journal Entries of Operating and Finance Leases 75

Lessor Operating Property Expenses 81

Operating Costs 82

Chapter 6 Operating Expense Reconciliation and Recoveries 91

Most Common Recoverable Operating Expenses 92

Most Common Nonrecoverable Operating Expenses 92

Calculating Tenant Pro Rata Share of Expenses 93

Chapter 7 Lease Incentives and Tenant Improvements 97

Lease Incentives 97

Tenant Improvements 99

Tenant Improvement Journal Entries 99

Further Comparison of Lease Incentives and Tenant Improvements 100

Differences in Cash Flow Statement Presentation 101

Demolition of Building Improvement 101

Chapter 8 Budgeting for Operating Properties 103

What is a Budget? 103

Components of a Budget 103

Chapter 9 Variance Analysis 109

Sample Operating Property Variance Analysis 109

Salient Points on a Variance Analysis 112

Chapter 10 Market Research and Analysis 113

Market Research Defined 113

Market Analysis Defined 113

Market Research: Practical Process 114

Chapter 11 Real Estate Valuation and Investment Analysis 121

What is Real Estate Valuation? 121

Approaches to Real Estate Valuation 122

Chapter 12 Financing of Real Estate 133

Equity 133

Debt Financing 133

Other Financing Sources 136

Types of Loans 137

Debt Agreements 137

Financing Costs 141

Relationship Between a Note and a Mortgage 142

Accounting for Financing Costs 142

Chapter 13 Accounting for Real Estate Investments and Acquisition Costs 143

Methods of Accounting for Real Estate Investments 143

Purchase Price Allocation of Acquisition Costs of an Operating Property 148

Chapter 14 Accounting for Project Development Costs on GAAP Basis 153

Stages of Real Estate Development Projects 153

Pre-development Stage 154

Development Stage 156

Post-development Stage 161

Chapter 15 Real Estate Development Revenue Recognitions 163

Requirements for Revenue Recognition 164

Revenue Recognition Journal Entries 165

Revenue Recognition When Performance Obligation is Satisfied Over Time 166

Chapter 16 Real Estate Brokerage Accounting 169

Real Estate Brokerage Revenues 169

Brokerage Commissions in Real Estate Development Projects 174

Real Estate Brokerage Costs 176

Chapter 17 Audits 179

Audit Overview 179

Types of Audits 185

Index 191