In Practice
Most multifamily properties report on an accrual basis. Rent is recorded as income when it is billed for the month, and an expense is recorded when you receive the goods or services, even if the invoice is paid later. The alternative, cash accounting, records things only when money changes hands.
This changes how you read your reports. If a resident owes January rent and has not paid, accrual accounting still shows it as income, and the unpaid amount appears on the delinquency report. If a vendor completes a repair on the 28th and sends an invoice on the 5th, the expense belongs to the earlier month. That is why month-end cutoffs matter and why your accountant will chase you for invoices and approvals before the close.
An example: a plumber fixes a leak on June 29 and sends the bill July 3. Under accrual accounting, the cost belongs to June. If it is entered in July, June looks better than it was and July looks worse.
A common mistake is sending invoices late and letting them fall into the wrong month, which distorts the variance report. Another is assuming collected cash equals income. Many owners also want to see a cash view, so know which one the report in front of you uses.
Accrual Accounting: Common Questions
What is the difference between accrual and cash accounting?
Accrual records income and expenses when earned or incurred. Cash accounting records them when money is received or paid.
Why do apartment communities use accrual accounting?
It matches income and expenses to the month they belong to, which gives owners and lenders a more accurate view of performance.
