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Real Estate Accounting Made Easy

Obioma A. Ebisike

ISBN: 978-0-470-64894-0 July 2010 208 Pages


All the fundamentals of accounting and finance of the real estate industry-made easy

Providing both the theories and practices of real estate from an accounting and financial perspective, Real Estate Accounting Made Easy is a must-read for anyone who needs a thorough and easier understanding of the real estate industry.

  • Walks you through the audit processes, including how to prepare the audit and the different kinds of audits
  • Helps new auditors, the company being audited, and users of audit reports understand the fundamentals of the financial aspect of the real estate business
  • Includes forms of real estate ownership, sole ownership, partnerships, joint ventures and real estate investment trusts (REITs), including the advantages and disadvantages of these entities covered in detail

A practical guide to the field of real estate accounting and finance, this easy-to-understand introductory and intermediary book on the field of real estate begins with the elementary and basic aspects of real estate to ensure that those that are new to the field are comfortable with this often-complicated subject matter.

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 21

Recording of Business Transactions in the Accounting System 23

Journal Entries 24

Basic Accounting Reports 26

Chapter 3 Forms of Real Estate Organizations 37

Sole Ownership 38

Common and Joint Ownership 38

Partnerships 39

Joint Ventures 41

Corporations 41

Limited Liability Companies 43

Real Estate Investment Trusts 44

Chapter 4 Accounting for Operating Property Revenues 47

Types of Leases 47

Revenue Recognition 52

Lease Classification 53

Additional Cost Recoveries 55

Operating Expenses Gross-up 56

Contingent Rents 57

Rent Straight-Lining 58

Modification of an Operating Lease 61

Sublease of Operating Lease 65

Chapter 5 Accounting for Operating Property Expenses 67

Operating Costs 67

Chapter 6 Operating Expenses Reconciliation and Recoveries 77

Most Common Recoverable Operating Expenses 78

Most Common Nonrecoverable Operating Expenses 78

Calculating Tenant Pro-Rata Share of Expenses 79

Chapter 7 Lease Incentives and Tenant Improvements 83

Lease Incentives 83

Tenant Improvements 85

Tenant Improvement Journal Entries 85

Further Comparison of Lease Incentives and Tenant Improvements 86

Differences in Cash Flow Statement Presentation 87

Demolition of Building Improvement 87

Chapter 8 Budgeting for Operating Properties 89

What Is a Budget? 89

Components of a Budget 89

Chapter 9 Variance Analysis 95

Sample Operating Property Variance Analysis 95

Salient Points on a Variance Analysis 98

Chapter 10 Market Research and Analysis 99

Market Research Defined 99

Market Analysis Defined 99

Market Research: Practical Process 100

Chapter 11 Real Estate Valuation and Investment Analysis 107

What Is Real Estate Valuation? 107

Approaches to Real Estate Valuation 108

Chapter 12 Financing of Real Estate 119

Equity 119

Debt Financing 119

Other Financing Sources 122

Types of Loans 123

Debt Agreements 123

Financing Costs 127

Relationship Between a Note and a Mortgage 128

Accounting for Financing Costs 128

Chapter 13 Accounting for Real Estate Investments and Acquisition Costs 129

Methods of Accounting for Real Estate Investments 129

Purchase Price Allocation of Acquisition Costs of an Operating Property 135

Chapter 14 Accounting for Project Development Costs on GAAP Basis 139

Stages of Real Estate Development Project 139

Postdevelopment Stage 147

Chapter 15 Development Project Revenue Recognitions 149

Full Accrual Method 150

Deposit Method 154

Installment Method 156

Reduced-Profit Method 157

Percentage-of-Completion Method 159

Cost Recovery Method 170

Chapter 16 Audits 173

Audit Overview 173

Types of Audits 179

Index 185