Glossary
Financial Concepts
Accrual Accounting
An accounting method that recognizes an expense in the period it was incurred, regardless of when the invoice was actually paid. Most commercial lease CAM definitions assume accrual accounting, since it's the GAAP standard, and a landlord billing a cost in the wrong lease year often traces back to an inconsistent accrual practice.
Firm impact
When a firm finds a large expense that seems to land in an unusual lease year, checking whether the reconciliation was prepared on an accrual basis is often the fastest way to explain, and potentially correct, the timing.
How this gets abused
A landlord receives a $40,000 landscaping invoice for work performed in December of Year 1, but the invoice isn't paid until January of Year 2. On an accrual basis, the expense belongs in Year 1. The landlord's reconciliation instead recognizes it in Year 2, shifting the cost into a year where more room remains under the CAM cap.
Practitioner note
For any large expense near a lease year boundary, request the invoice date, the service date, and the payment date, then confirm which one the reconciliation used to assign the expense to a lease year. The service date, not the payment date, should govern under accrual accounting.
FAQ
Questions about accrual accounting
Does accrual accounting recognize an expense when it's billed or when it's paid?
Neither exactly. Accrual accounting recognizes an expense in the period the underlying service or cost was actually incurred, which is usually closest to the service date on the invoice, not the payment date.
Why does the accrual date matter more than the payment date for a CAM audit?
Because cap and base year calculations are tested within a specific lease year. If an expense is assigned to the wrong year based on when it happened to be paid, it can land inside or outside a capped period incorrectly.
You know the term. Now check the math.
Get started to deliver white-label CAM audit reports under your firm brand.