Keeping track of income and expenses is essential, even if you don't own a business. And if you do own a business, things get even more complicated. There are paychecks to issue, taxes to track, and subcontractors to pay out. All of these details are a whole lot less challenging when you hire an accountant to oversee them. However, it is still important to know a little bit about accounting yourself. Dig into the articles on this website, and you'll gain a better understanding of accounting principles, what services accountants really offer, and the benefits of hiring these professionals to assist with your finances.
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What's Your Number? An Accounting Blog
Keep an Eye on These 5 Common Real Estate Accounting Issues
Dianne Graham
Enterprises with significant real estate interests often have major accounting requirements. This is especially true at brokerages, trusts, development firms, property management companies, and other entities that see major turnovers in cash or assets annually. Professionals in the real estate accounting services industry regularly tell their clients to keep an eye on these 5 issues.
Closing
The close process creates a multitude of real estate accounting concerns. Especially if there are any last-minute changes to a deal, this can get complex. A brokerage, for example, has to understand the time of the disbursement of funds to ensure compliance, accurately book profits and losses, and pay commissions. Everything has to go into the accounting and tax software at the right time to ensure smooth operation.
Valuation
Some businesses aim to hold onto real estate assets for the long run. This reduces the type of stuff from the previous section, but it also creates questions about valuations. Especially if your company has to comply with securities rules, applying valuations to its assets is critical. Fair valuations are necessary for continuing financing activities, paying taxes, and releasing corporate financial statements. If a company has to declare bankruptcy, one of the first things the court will want to see are asset valuations.
Income
Real estate is increasingly a common source of income beyond simple sales of properties. Many REITs, for example, now exist for the specified purpose of owning properties and renting them to residential or business tenants. All rental income has to go into your real estate accounting systems for reporting and tax purposes. Similarly, you'll probably want to use the accounting system to evaluate which properties are worth retaining or selling. Also, potential buyers of assets will likely want to see the numbers before they close any deals.
Tracking Expenses
All real estate requires some degree of maintenance. Fortunately, you can often expense these for reporting and tax reasons. However, maximizing the benefits means tracking everything like a hawk. Right down to paying landscapers to mow the lawn in front of an office building, you'll want to track every eligible expense.
GAAP
Many entities in the U.S. employ what are known as generally accepted accounting practices. GAAP is an accounting standard everyone in the profession can follow based on previous exposure. Companies should calculate cash flow using a GAAP standard that even students in accounting school right now would recognize.
It is a good idea to adopt and implement GAAP as soon as possible. If you have to use non-GAAP math for anything, be sure to note it in all reports, filings, and releases.
To learn more, contact a real estate accounting service in your area.
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