Accrual accounting records income when earned and expenses when incurred, regardless of cash timing. Contrasts with cash accounting. Most multifamily operating statements use accrual-based conventions for accuracy.
Under accrual accounting: rent is recorded when due (not when paid), expenses are recorded when the obligation is incurred (not when the check clears). Provides more accurate period-matching of income and expenses.
For LA multifamily sellers, operating statements are typically on an accrual basis. Tax filings may be cash or accrual depending on entity structure and taxpayer election. Buyer due diligence should confirm which basis operating statements are using and adjust for comparability.
From the Sterman LA Multifamily Glossary — defined the way a broker with $1.41 billion across 254 closed transactions actually uses these terms.
Michael Sterman, Senior Managing Director Investments, Marcus & Millichap.
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