Prepaid Rent vs. Accrual: How to Treat the Annual Landlord True-Up
The bill lands in March. It is a CAM reconciliation for last year, and it asks for an additional $7,800. The bookkeeper sees a March invoice and books a March expense. The controller looks at it twice and asks the question that decides the accounting treatment: what period is this bill actually paying for?
That single question separates a clean close from a misstatement. CAM true-up bills carry an invoice date that is months after the period they reconcile. If the books are closed and the obligation existed at year-end, the journal entry is not a current-month expense. It is the unwind of an accrual that should have been recorded in the prior period. Getting this right is bookkeeping discipline, not CRE expertise.
CAM true-up: The annual reconciliation invoice or credit a landlord issues after the close of a lease year, comparing actual operating expenses to the monthly estimates the tenant paid during that year. If actuals exceed estimates, the tenant owes the difference. If estimates exceeded actuals, the tenant receives a credit. The amount relates to the prior period regardless of when the invoice posts.
The decision rule starts with the period, not the invoice date
GAAP and the basic matching principle agree on one thing for occupancy expense: the cost belongs in the period the tenant occupied the space. The invoice date is not the trigger. The period covered is the trigger.
Three scenarios cover almost every CAM true-up bill that hits the AP queue:
Scenario one: bill arrives during the open period it covers. Rare, but it happens. The lease year is the calendar year, the landlord runs an unusually fast reconciliation, and the bill arrives in late December. Code it to current-period operating expense. No accrual judgment needed.
Scenario two: bill arrives after the period it covers, books still open. The most common case for accrual basis clients with a slow close. The 2025 lease year ended December 31, 2025, the reconciliation arrives March 14, 2026, and the books for 2025 are not yet closed because the firm is still in audit prep. Book the bill as of December 31, 2025 against an accrued liability. The matching principle wins.
Scenario three: bill arrives after the period it covers, books closed. The most frequent real-world case. 2025 is closed and locked, the bill arrives in March, and reopening the period would force a full reissue of statements. The bill flows through current period as a prior-period adjustment to occupancy expense. Materiality drives whether disclosure is needed.
How to set up the year-end accrual
If your client signs a lease with monthly CAM estimates, you have enough information to estimate a year-end accrual without waiting for the landlord. The mechanics are straightforward.
Pull the prior two years of reconciliation history. Calculate the average percentage by which the actual landed above or below estimate. If the prior two years ran 6.4 percent above estimate on a $24,000 annual estimated CAM run rate, the expected true-up is roughly $1,500. That is the year-end accrual.
The journal entry at December 31:
| Account | Debit | Credit |
|---|---|---|
| Operating expense: occupancy | $1,500 | |
| Accrued occupancy liability | $1,500 |
When the actual reconciliation arrives in March showing a $1,720 true-up, the unwind:
| Account | Debit | Credit |
|---|---|---|
| Accrued occupancy liability | $1,500 | |
| Operating expense: occupancy | $220 | |
| Accounts payable | $1,720 |
"The accountant''s job on a CAM true-up is bookkeeping discipline first and CAM expertise second. Spot the period it covers, decide whether the books are open, and book it to the right period. The forensic question of whether the landlord overcharged comes after the period treatment is correct." - Angel Campa, Founder, CAMAudit
When a CAM true-up is actually a refund
Refund treatment mirrors charge treatment. If the 2025 reconciliation produces a credit because monthly estimates overshot actual expenses, the credit reduces operating expense in 2025 if the period is open, or current period if the period is closed.
The mechanical risk on refunds is double-counting. If your client''s landlord applies the credit against the next month''s rent invoice rather than issuing a check, the AP team may post the reduced rent payment as a current-period expense reduction without recognizing that the underlying credit relates to the prior year. Watch for this on accrual basis clients with material reconciliations.
When a CAM bill is actually a contract issue, not a coding issue
The first job is to get the period right. The second job is to flag whether the bill itself is correct. A CAM bill can be coded perfectly to the right period and still be wrong on the merits. Common patterns:
- A management fee calculated on gross expenses rather than the net pool the lease defines
- Capital expenditures expensed rather than amortized as the lease requires
- Pro-rata share computed on a denominator that excludes vacant space when the lease specifies a fully-leased denominator
- A controllable expense increase exceeding the cap the lease defines
These are not bookkeeping errors. They are landlord billing errors. The accountant''s scope is to flag them and escalate for review, not to dispute them. Spot the red flag, preserve the document, escalate when it moves beyond bookkeeping review. CAMAudit handles the detection layer and produces a findings report the controller or outside specialist can use as the basis for a formal response.
See coding issue vs. contract issue for the decision tree on when a CAM line is in scope for the bookkeeper versus out of scope.
Three checks before posting a CAM true-up
Before any CAM true-up bill posts to the GL, the close team should run three checks:
Period check. What period does the reconciliation cover? Is that period open or closed in the books? This drives whether the entry is current period, prior period adjustment, or accrual unwind.
Estimate check. Did the client pay monthly estimates during the period? Were those estimates coded to operating expense as paid? Confirm before booking the true-up so the total occupancy expense matches what the lease economics actually were.
Reasonableness check. Does the true-up amount line up with prior years and with the estimate variance the client typically sees? A true-up that is 25 percent of annual estimated CAM is unusual and worth a second look before posting. That is the trigger to escalate to the partner or to a CAM specialist.
The bookkeeper''s job is not to audit the landlord. The bookkeeper''s job is to spot when the bill behaves differently than the prior pattern and to flag it. CAMAudit''s detection rule for estimated payment true-up errors catches the math discrepancies that produce these unusual swings.
Documentation that protects the client
Whatever treatment the accounting team applies, the workpaper should document three items:
A copy of the reconciliation statement and the lease section that defines the CAM scope. The journal entry with a memo identifying the period covered and the reasoning for the treatment chosen. A note flagging any line items in the reconciliation that look unusual relative to prior years.
That documentation is what protects the client if the landlord later disputes the reconciliation, if the auditor reviews occupancy cost in the next financial statement audit, or if the client decides to pursue a formal CAM compliance review. The bookkeeping work and the forensic work do not have to happen in the same engagement, but the bookkeeping work has to be clean enough that the forensic work can build on it without rework.
The annual CAM true-up is one of the few entries on the books where the right answer requires reading both the invoice and the lease. Build the habit of pulling the lease abstract every March, and the CAM line stops being the close-period mystery it is at most accounting firms.