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Real Estate Accounts | by Walter Mucklow



It is a curious circumstance that, although accountants generally recognize the value of real estate as an asset, and frequently give evidence of that belief by assigning it a certain pre-eminence when marshalling assets or arranging a balance sheet, there is little literature on the subject of real estate accounting, either here or abroad.

TitleReal Estate Accounts
AuthorWalter Mucklow
PublisherThe Ronald Press Company
Year1917
Copyright1917, The Ronald Press Company
AmazonReal Estate Accounts

Treating of the Proper Classification, Construction, and Operation of Accounts for the Real Estate Business, including Forms

By Walter Mucklow, C. P. A.

Member American Institute of Accountants

The Ronald Press Company
-Preface
It is a curious circumstance that, although accountants generally recognize the value of real estate as an asset, and frequently give evidence of that belief by assigning it a certain pre-eminence whe...
-Real Estate Accounts. Chapter I. Definitions. Section I. Definitions Of Terms
Before dealing with real estate accounting, it is necessary to understand clearly what constitutes real estate. The Century Dictionary gives the following definition: Land, including with it whatev...
-Chapter II. Records For Real Estate. Section 2. Records Required
To record properly all transactions arising in connection with real estate, a considerable number of books and forms must be provided. No one concern may need them all, but they are treated here to pr...
-Section 3. Use Of Records To Officers
It not infrequently happens that there are several officers in a real estate company, and perhaps several committees, each looking at the affairs of the concern from a different standpoint and requiri...
-Section 4. Loose-Leaf And Card Records
Except in the cases of the few general accounts specified below as requiring bound books, the larger part of the real estate records may be most conveniently kept in loose-leaf ledgers or on cards. In...
-Section 5. List Of Real Estate Records
The following list is intended to include the more important books and records required in the many ramifications of the real estate business. The list looks formidable, and in practice no office, sav...
-Section 6. Separate Books For Each Class Of Accounts
The idea sometimes prevails with those unfamiliar with accounting that the simplicity of an accounting system may be measured by the number of books employed - an idea which is frequently fallacious. ...
-Section 7. Condensed Records
Several decades ago there was an unnecessary amount of writing caused by the multiplicity of day-books, the needless journalizing of every entry, and useless transcriptions from book to book. It was d...
-Chapter III. Corporate Records. Section 8. Minute Book
The minute book is of the first importance among corporate records, for it is usually the original and sole record of the proceedings at corporate meetings. It also contains copies of both the charter...
-Section 9. Stock Certificate Book
The form of the stock certificate book and the general design of its certificates vary but little. The matter appearing on the body of the certificates is determined by custom or by the statutes of th...
-Section 10. Stock Record Or Stock Ledger
This is really a sub-ledger, in which an account is opened with each stockholder, charging him with certificates issued to him and crediting him with those which he has surrendered. (See Form 1.) Inas...
-Section II. Subscription Ledger
This book is needed only where capital stock is not paid for immediately upon subscription. In it, an account is opened for each subscriber for stock, showing his name and address, the amount of his s...
-Chapter IV. General Books Of Account. Section 12. General Receipt Book
It is essential that every item of cash received should be immediately entered on the records, and the best method of accomplishing this is to use a receipt book in which the receipts are numbered con...
-Section 13. Cash Book
In modern practice it is customary to speak of the cash book as distinct from the journal, and this naturally leads those unfamiliar with bookkeeping to think that some radical difference exists betwe...
-Section 14. Petty Cash Book
As already stated, all payments entered in the general cash book must be made by check, and as in every office there are sundry disbursements too small to justify separate checks, some proper means of...
-Section 15. Superintendent's Cash Book
It is frequently desirable that a superintendent or resident manager whose headquarters are distant from the head office, be furnished with funds to meet current expenses. If the amounts he expends ar...
-Section 16. Journal
Inasmuch as the journal is a book of original entry, and contains entries vitally affecting nearly all sales and purchases, the book should be permanently bound and not of the loose-leaf form. The num...
-Section 17. General Ledger
Inasmuch as in a properly designed system the number of accounts in the general ledger is small compared with the total number of accounts, a bound book can often be conveniently used. In the case of ...
-Chapter V. Sub-Ledgers. Section 18. Mortgages Receivable Ledger
This is a sub-ledger intended to show all the particulars of every mortgage held by the concern. (See Form 8.) It is of minor consequence whether it be a bound book or a loose-leaf ledger, as the mort...
-Section 19. Mortgages Payable Ledger
This is a sub-ledger somewhat similar to that just described, but containing the particulars of all mortgages (entered in numerical order) which are payable by the concern. A special form of ruling i...
-Section 20. General Contracts Ledger
The sub-ledger known as the General Contracts Ledger should contain particulars of all those sales with deferred payments not secured by mortgage which do not belong to any special subdivision and w...
-Section 21. Commissions Payable Ledger
One of the minor difficulties sometimes encountered in a real estate office is the keeping of a simple and effective record of amounts paid to brokers or agents as commissions on time sales of the con...
-Section 22. Brokerage (Commissions Earned) Ledger
The brokerage ledger is used for the purpose of recording all the transactions which yield a brokerage or a commission. (See Chapter XXX (Agents And Brokers, And Their Accounts. Section 306. Accounts ...
-Section 23. Subdivision Customers Ledgers
These sub-ledgers (Forms 14, 15, 16) contain accounts with individual purchasers of lots included in subdivisions handled by the concern (SectionSection 173, 174). If the concern buys a house, and the...
-Chapter VI. Property Records. Section 24. Report Of Real Estate Transactions
To record the technical details of real estate transactions in a proper manner, the bookkeeper must be furnished with complete data, and this can best be accomplished by the use of special forms. Form...
-Section 25. Property Index
The purpose of this index is to enable the bookkeeper to turn to the records of any piece of property though only the name of the vendor is known, and furnish a list of all real estate acquired. It is...
-Section 26. Property Ledger - Wild Lands
The property ledger is the most technical and distinctive of the entire series of real estate records, and one of the most important. It records all the details of every piece of property in which the...
-Section 26. Property Ledger - Wild Lands. Continued
The sheets used in this record are 21 inches wide and 17 inches deep, making a book 42 inches wide when open, the record running entirely across the folios. The books from which these dimensions are ...
-Section 27. Property Ledger, City Properties
It is beyond question that the most convenient form for the record of city properties is a loose-leaf book. As already stated, the property ledger shown in Form 21 is suitable for this purpose, as is ...
-Section 28. Field Record
It is often advisable to have a record of wild lands or of city lots, which may be carried in the pocket. In such cases, the most convenient form is a small loose-leaf book, 5 X 7 3/4 inches, ...
-Section 29. Subdivision Ticklers
In the case of what is known as subdivision property, it is well to have a separate tickler for each subdivision. The usual method of keeping this is either on cards or in loose-leaf books, each tickl...
-Section 30. Plat Book
This book is composed of plats of the lands described in the property ledger. In those states in which the United States township is used, these plats can be most easily shown on the official governme...
-Section 31. Record Of Deeds Received
The object of this record is to facilitate reference to any desired deed. There are two forms in which this record may be kept, one of which is a numerical index in which there are columns for the fol...
-Section 32. Record Of Deeds Issued
Special attention is called to the record of deeds issued (Form 30), the object of which is to keep a permanent record of every deed executed by the concern. This matter is often overlooked in real es...
-Section 33. Record Of Contracts Issued
The general remarks as to the importance of office records of deeds issued apply also to the record of contracts; but the method of keeping this record is somewhat simpler, owing to the fact that the ...
-Section 34. Record Of Options Granted
This record is similar in all respects to that for contracts, and it is to be noted that three distinct records are required: 1. A copy of the paper executed. 2. Particulars in the sub-ledger. 3. P...
-Section 35. Subdivision Histories
This form is required only in those offices where many different subdivisions are handled. It consists of a memorandum book or collection of loose leaves, one or more pages being devoted to each subdi...
-Chapter VII. Rent Records. Section 36. Record Of Leases Given
In those few offices in which it is possible to issue a considerable number of leases of the same general character, either of the methods outlined in Section 32 for the recording of deeds may be foll...
-Section 37. Rent Register (House Address Book)
This book is invaluable for any office interested in a large number of houses for rent or sale. It is intended to contain a record of all rentable properties owned by the company, or in which it has a...
-Section 38. Rent Receipt Books
The same principles that obtain with reference to the general receipt book (Section12) apply with equal force to rent receipt books, the main difference being that the latter are properly of such size...
-Section 39. Report Of Rent Collections
The rent report shown in Form 34 was designed by-English accountants for use in this country in connection with property owned in England, a copy being transmitted to the home office. In such cases, o...
-Section 40. Rent Cash Book
For an office handling many rental houses, it is usually convenient to keep all matters pertaining to rents out of the general cash book. An ordinary cash book may be used for this purpose. All rents ...
-Section 41. Rent Journal
The journal entries required in connection with a rent department are few and simple, an ordinary journal with three or four columns meeting every requirement. Such entries relate almost entirely to t...
-Section 42. Rent Ledger
This sub-ledger shows the gross and net rent received from each building on the rent roll, and is used when the items in these accounts are too numerous for the space provided in the property ledger. ...
-Section 43. Collector's Pocket Rent Ledger
One of the difficulties experienced by all rent collecting agencies is that of keeping the collectors informed as to the condition of each account, particularly rents in arrears. For this purpose man...
-Chapter VIII. Miscellaneous Records. Section 44. Fire Insurance Record
This record is intended to show the expiration of all insurance policies in which the concern is interested. Any of the recognized forms of expiration register used by fire insurance agents may be ado...
-Section 45. Bills Receivable And Bills Payable
Bills receivable and bills payable books may be of any convenient form. They should contain details of all notes not entered in the mortgages receivable and mortgages payable ledgers (SectionSection 1...
-Section 46. Land Notes
Some companies engaged in selling lands on time make a practice of taking payment in serial notes. When this is done, it is better to enter such notes in a record separate from the regular bills rec...
-Section 47. Mortgage Interest
The necessity for a record from which each mortgage may be charged with interest as it becomes payable is obvious. The only form required for this purpose is a book made of analysis paper and having a...
-Section 48. Expense Account Analysis Book
It is essential to the highest economy that the expense account be frequently analyzed, and kept in such condition as to afford at all times data for a classified statement of expenses. This may be do...
-Chapter IX. The Acquirement Of Real Estate. Section 49. Methods Of Acquiring Real Estate
There are at least five legitimate methods by which the control of real estate may be acquired, viz.: (1) by gift, (2) purchase, (3) exchange, (4) recovery, (5) agency. 1. Control through gift occurs...
-Section 50. Accounting Procedure
In the acquisition of real estate there are certain matters with which the accountant is particularly concerned. The more important of these are: 1. The report of the purchase, giving the particulars...
-Section 51. Entries Required
Newly acquired real estate is brought on the books through the cash book and the journal. The cash book entries represent merely cash paid for, or on account of, any purchase. Such amounts are debited...
-Section 52. Mortgages Payable
Mortgages payable are of two classes, namely: 1. Mortgages given by the concern (a) to secure a part of the price paid for property, and (b) as security for money borrowed by the concern. Inasmuch as...
-Section 53. Legal Obligations Of Mortgagor
There is, however, one important distinction between these two classes of mortgages. Every mortgage imposes an obligation on the maker to fulfil the conditions named, and to make stipulated payments a...
-Section 54. Contracts Payable
The general principles applying to mortgages payable apply equally to contracts payable, except that frequently in the case of contracts there is no legal obligation on the part of the purchaser to co...
-Section 55. Trusts And Trustees
The acquiring of property frequently necessitates some form of trusteeship in connection with a mortgage given or bonds issued - a matter which is touched upon in Section 305. Only general directions ...
-Chapter X. Property Costs. Section 56. The Elements Of Cost
While the question of holding or disposing of any given piece of property is usually decided by the executive rather than by the accounting department, the decision often depends on information furnis...
-Section 57. Treatment Of Costs
It will readily be seen that the cost of acquirement differs in one notable particular from each of the other costs, in that it represents what is known in mercantile and manufacturing accounts as the...
-Section 58. Cost Of Improvements
The only addition to the original cost price of property is the cost of improvements, a record of which is provided for in the property ledger main account. Such items may properly be charged directly...
-Section 59. Repairs, Renewals, And Improvements
From the accountant's standpoint, there are few accounts on the books which require more careful examination than the Improvements or Betterments account - a condition applying equally to all business...
-Section 60. Definitions
Repair is the restoration to a sound or good state after decay, waste, injury, or partial destruction; it is the supply of loss. Betterment is defined under American law as an improvement of real ...
-Section 61. Repairs
The definition of repairs given in the preceding section is clean-cut and definite; but even here difficulty may be experienced, particularly in connection with the time when repairs are made. In the ...
-Chapter XI. Carrying Charges. Section 62. Interest And Taxes
It is to be noted that the cost of carrying property dates from the time the purchase price is paid or guaranteed. The mere holding necessitates the use and the tying up of capital which otherwise cou...
-Section 63. Interest As Part Of Cost
In this country, if a construction company undertakes to build a railway, it is permitted by law to include in construction expenses interest on loans effected and on notes issued for construction pu...
-Section 64. Inventories At Cost
The auditor on inquiring as to the cause of the sudden increase in values shown by the Real Estate account is often told that the land was valued by three experts, and that the new figures represent ...
-Section 65. Interest On Cost
There is another phase of the interest question to be considered. When land is bought with the idea of holding it for a future rise in value, the owner must necessarily take into consideration interes...
-Section 66. Treatment Of Interest Charges
The foregoing discussion may be summarized as follows: Interest on purchase money, even though this be borrowed in whole or in part, is not ordinarily a proper charge against cost. Interest on borrowe...
-Section 67. Depreciation As Affecting Cost
One other matter affects the cost of holding, and that is the depreciation of buildings. This subject presents some complications and requires consideration in some detail. It is therefore treated sep...
-Section 68. Taxes
The principles which apply to interest are in a general way applicable to taxes - with the marked difference that the actual payment of taxes on the whole assessed value admits of no evasion. Though a...
-Section 69. Assessments
The word assessment is here used in a limited sense, referring only to such charges as do not necessarily enhance values. The term is, however, frequently applied to the owner's share of the expense...
-Section 70. Cost Of Maintenance And Operation
The case of an office building may now be considered, as differing as widely as possible from unimproved properties. Here the income is from rent. As to expenditures, we have in addition to those al...
-Section 71. Profits On "Value" And "Investment"
In improved properties another distinction is, however, quite commonly found. The profit on the value of the property frequently differs from the profit on the actual cash investment. This is clearly ...
-Chapter XII. Sales Of Real Estate. Section 72. Time Sales
From the fact that real property is usually sold with some form of guaranty on the part of the vendor, thereby creating a contingent liability, it is. fully as necessary that the records should show e...
-Section 73. Final Sales
When property is finally disposed of and completely paid for in cash or its equivalent, it is well to enter on the face of the Real Estate account for the particular piece of property sold, an indorse...
-Section 74. Form Of Entries Relating To Sales Of Property
To illustrate the entries required on selling a piece of property, assume the case of property sold to Richard Haines for $1,200, the cost price being $1,000. There are four distinct methods of paymen...
-Section 75. Legal Expenses
It is the rule in some offices to charge each mortgagor with a fixed sum to cover the legal expenses incurred in obtaining an attorney's opinion on title, in drawing the papers, etc. As this amount in...
-Section 76. Surrender Of Contract
A word of caution may be given as to the importance of seeing that all proper formalities are complied with before a deed is delivered. This applies not only to the receipt of the actual consideration...
-Chapter XIII. Profits From Real Estate Sales. Section 77. Definition Of Profits
The word profit is variously defined according to its use in general business or in economics; but the particular definitions of this term in connection with real estate accounting are: 1. Excess o...
-Section 78. Sources Of Profits
It has already been shown that real estate may perform a number of distinct functions, and it follows that profits on real estate may arise in a number of different ways. Among the principal sources a...
-Section 79. Profits From Sales
These profits are evidently the difference between the cost price and the selling price. There are, however, certain questions to be considered in determining just what these two prices are, for the a...
-Section 80. Cost Price
The original consideration for property may have been entirely cash; or cash in part, with mortgages in some form. Beyond this there are taxes, insurance, interest, and improvements to be considered, ...
-Section 81. Selling Price
As already suggested, the selling price also may involve considerations other than the actual purchase price. It frequently includes taxes paid or to be paid, and insurance paid in advance. In such ca...
-Section 82. Earned Profit
If the sale is for cash, the difference between the cost and the selling price, as these terms have been qualified above, will show at once the profit which is earned and realized. The entries require...
-Section 83. Mortgage Assumed By Purchaser
It very frequently happens that a transaction involves more than the exchange of cash for real property. There may be a mortgage or some other lien which the purchaser assumes; or, more often, the pur...
-Section 84. Large Cash Payment - Balance Secured By Mortgage
In those cases where a part of the purchase price remains unpaid and is secured by a mortgage, the situation becomes rather more complicated, especially as to the methods of entering the profits. No o...
-Section 85. Small Cash Payment - Balance Secured By Mortgage
It frequently happens, however, that only a small cash payment is made, the greater part of the purchase money being secured by mortgage. In such a case the safest method is not to consider the transa...
-Section 86. Gain On Sales Account
In cases where mortgages are taken in part payment, the apparent gain should be carried to the Gain on Sales account (SectionSection 79-82). The handling of this account is treated more fully in Chapt...
-Section 87. Sales On Contract
It is a practice common probably throughout the United States, for owners of real estate, especially corporations whose business it is to buy, develop, and dispose of real estate, to sell their proper...
-Section 88. Exchange Of Properties
Another method very frequently used in disposing of real estate is in the nature of an exchange, the owner selling his property and taking in payment therefor other property, with perhaps some cash pa...
-Section 89. Appraisal Of Property
The appraisal of any real estate is, of course, merely an expression of opinion, and the only true measure of its value at a given time is an actual sale, or a bona fide offer of cash or its equivalen...
-Section 90. Development Properties
The treatment of profits accruing from the sale of suburban tracts or development properties (that is, land bought in considerable quantities, subdivided by the owner and sold off in comparatively sma...
-Section 91. Hidden Profits
In some cases the profits from real estate may be said to be hidden - a condition most clearly explained by an example from actual practice. Four partners together bought a tract of 3,000 acres of la...
-Section 92. Anticipated Profits
The foregoing illustration is not given as an example to be followed, but merely to illustrate the complications which may arise. In fact, the wisdom of anticipating profits in this way is doubtful, a...
-Chapter XIV. Profits From Rents. Section 93. Rent
For the accountant, rent means a compensation payable at some stated time or times for the possession and use of (but not the title to) property for a definite period. This definition must sometimes ...
-Section 94. Leases
The amount, duration of occupancy, time of payment, and other particulars, are frequently set forth in a lease. In a very large number of cases, however, no such paper is drawn and the agreement is me...
-Section 95. Gross Rent And Net Rent
In real estate records, the expressions gross rent and net rent frequently occur, corresponding in general to the gross profits and net profits of a mercantile enterprise, but too often used i...
-Section 96. Net Rent And Net Returns
Strictly speaking, the other closely related charges, such as interest and depreciation, do not affect net rent, although they must be included when considering net returns. The fact that an owner is ...
-Section 97. When Should Rents Be Entered?
No mention of provision for entering rents on the books of account until those rents are collected has yet been made, and no one general rule governing the proper procedure can be stated. The course t...
-Section 98. Rents From Mines And Similar Sources
The treatment of rentals from mines pertains to the accounts of mining companies rather than to those of a real estate concern, and need not be considered in great detail at this time. As has already ...
-Section 99. Treatment Of Mining Rents
Beyond the suggestions already given, it is difficult to generalize in the matter of rents from mines and similar returns, for each instance must be worked out for itself, the residual value being so ...
-Chapter XV. Profits From Enhancement Of Value And From Miscellaneous Sources. Section 100. Increased Value Of Mineral Lands
Profits from Enhancement of Value In the case of mining rights, there frequently arises a need for reappraisals on account of fresh deposits being found, or on account of improved facilities becomi...
-Section 101. Enhanced Real Estate Values
By this is meant an increase in the market price of real estate not sold but still owned by a concern. When considering this source of profit, the manager should clearly recognize the distinction betw...
-Section 102. Fluctuations In Real Estate Values
When considering the wisdom of placing on the books any values of real estate other than the cost price, it must be remembered that, while real estate is among the most stable of assets inasmuch as it...
-Section 103. Bank Practice
An example, or rather a series of examples, which may be instructive for too optimistic a management, may be found in the treatment of real estate by banks and trust companies throughout the country, ...
-Section 104. Accounting Treatment
The question of entering on the books of account actual or supposed increases in value of real estate before they are realized, is one which accountants are frequently forced to consider. It is obviou...
-Section 105. Rights Of Stockholders
It may be suggested, in connection with increased real estate values, that there is another point of view to be considered - that of the stockholders, for whom the officers of the company are, in fact...
-Section 106. Effect Of Enhanced Real Estate Values On Rent Charges
There is another aspect of the above conditions which is too frequently overlooked, and which can be made clear by an example. A mercantile concern paid $60,000 for the building in which it transacted...
-Section 107. Summary
The entire question as to the treatment of profits from enhanced real estate values not yet realized may be summarized as follows: 1. In the case of a real estate concern whose chief asset is its rea...
-Section 108. Profits From Money Borrowed On Real Estate
Profits from money borrowed on real estate and reinvested do not necessarily affect the accounts of a real estate concern as such, for the money so borrowed may be invested in any enterprise or securi...
-Section 109. Operation Of Manufacturing Properties
It is a common occurrence for a real estate concern to find itself the owner, by sale or exchange, or more often by foreclosure proceedings, of certain properties whose values can be maintain...
-Section 110. Operation Of Agricultural Properties
Agricultural properties, such as farms, orchards, and plantations, do not, as a rule, involve so many details. Such properties are usually placed under the management of a superintendent skilled in th...
-Section 111. Operation Of Orchards - Increase In Value
Owing to risks incident to all agricultural enterprises, the greatest conservatism must be observed in bringing on the books any enhanced values on account of the growth of trees, for the trees themse...
-Section 112. Showing Profit On Annual Statements
Instead of closing the operating accounts each year, it is sometimes wiser to carry forward the balance from year to year, particularly in the case of a young orchard not yet in bearing. These totals ...
-Section 113. Profits From Crops Other Than Fruit
Profits from crops other than fruit so seldom affect real estate concerns that only a reference to them is necessary. Land and development companies are sometimes brought in touch with these profits i...
-Chapter XVI. Time Sales - Mortgages. Section 114. Time Sales
It is probably true that cash sales - the simple exchange of real estate for currency - form a very small proportion of the vast number of transfers of real estate which take place annually in the Uni...
-Section 115. Classes Of Time Sales
Time sales may be divided into the following classes: 1. Sales where the vendor conveys title, a part of the purchase money being secured by a mortgage made by the purchaser to the vendor. 2. Transa...
-Section 116. Mortgages
From an accountant's standpoint, the term mortgage may be defined as the pledging of property, frequently real estate, as security for the repayment of a specified sum of money at a specified time, ...
-Section 117. Mortgage Notes
The form of mortgage is purely a legal matter and needs but little consideration here. The notes secured by the mortgage are, however, an entirely different matter and require discussion in some detai...
-Section 118. The Instalment Mortgage
There are certain points peculiar to this form of mortgage which are used as arguments for and against its adoption. Arguments in favor of this form are as follows: 1. The security is in a definite f...
-Section 119. Annuity Tables
Reference to good annuity tables* will usually solve the questions which arise in connection with instalment mortgages, i.e.: being given the purchase price and the rate of interest - * Stubbins' Ann...
-Section 120. Change Of Ownership
In connection with sales secured by mortgage, one point is sometimes overlooked which is usually covered in contracts - that is, the transfer of the property by the mortgagor, and the consequent chang...
-Section 121. Foreclosures
In all business dealings in mortgages, there sometimes arises the necessity of instituting foreclosure proceedings or taking some other steps to acquire the mortgaged property. Occasionally such proce...
-Chapter XVII. Time Sales - Contracts. Section 122. Simple Form Of Contract
The term contract is used in this book to cover the great variety of forms of agreement which are given to purchasers, or prospective purchasers, of real estate, and which are known as leases, condi...
-Section 123. Conditions Applying To Contracts
The following points affecting the business side of contract sales are of interest to the accountant: 1. It is usual to state clearly when payments are to be made. 2. The purchaser usually agrees to...
-Section 124. Precision As To Amount Of Sale
Another point which calls for care is a definite statement of the total amount of the sale. For example, the agreement may be granted for a nominal consideration of $100, and may provide that, on the ...
-Section 125. Pass-Book Contracts
There is one variety of contract which for convenience may be called the pass-book contract, in which the contract is printed on the first pages of a book similar to a bank pass-book, the descriptio...
-Section 126. Cancellation Of Contracts
It is well for the owner of any property to inform himself as to the practice of the courts in regard to the cancelling of contracts. In the case of a time sale secured by mortgage, the deed to the pu...
-Section 127. Comparative Advantages Of Mortgages And Contracts
The owners of real estate, particularly of subdivision property, are frequently in doubt as to the best method of selling, and especially as to the relative advantages of selling under mortgages and u...
-Section 128. Contract Statements
The advisability of sending out regular statements of account to purchasers under contracts must be left to the judgment of the vendor. The sending of such statements to those who are in arrears might...
-Section 129. Contract Accounts
It will be seen that the general contracts ledger shown in Form 11 (Section20) provides for one account only for each contract, this account receiving all entries relating to principal, interest, and ...
-Chapter XVIII. Options. Section 130. Nature Of An Option
An option, as understood in connection with real estate, is an agreement which conveys the exclusive right to purchase a definite piece of property for a stipulated price within a specified time. In o...
-Section 131. Accounting Treatment Of Options
The bookkeeping entries, save as to rent-producing properties, should credit Options with option payments as they are received; and if the number of such transactions Warrants it, a sub-ledger shoul...
-Section 132. Refusals
An option differs in the last point above mentioned from what is generally known as a refusal. This may be described as a promise made by the owner to give the holder the first choice on a certain p...
-Section 133. Deeds In Escrow
Signing, sealing, and delivery are all essential to a deed. It is sometimes desired that delivery be not made until some future date, or until certain conditions have been performed. In such cases the...
-Chapter XIX. Interest. Section 134. Mortgage Interest
Mortgage interest is that accruing upon the unpaid portions of the purchase money represented by notes secured by mortgages or provided for in a contract. The simplest form in which interest on mortga...
-Section 135. Interest Adjustments
It frequently happens that interest on mortgages, already charged, is either reduced or cancelled, and in such cases debit items are brought into the Mortgage Interest Receivable account by the follow...
-Section 136. Unearned Interest
We now come to the second class of mortgage interest, where interest on the entire mortgage is calculated at the beginning, added to the principal, and the sum divided into a number of equal parts. Th...
-Section 137. Unearned Interest - Methods Of Calculating
There are three methods of calculating this unearned interest: 1. By a rough averaging of the time, i.e., the life, of the mortgage. 2. By reference to tables. 3. By mathematical calculation. Th...
-Section 138. Unearned Interest - Alternative Methods Of Calculating
While the method of calculating interest above outlined is correct, it is extremely inconvenient in an office where there are many contracts involving such interest calculations, and various attempts ...
-Section 139. Unearned Interest - Various Examples
In order to compare the results obtained by the different methods of calculating interest, let us take the example of a contract for $5,000 dated January 1 and payable in monthly instalments of $100 e...
-Section 140. Unearned Interest - Phraseology Of Interest Clause
It is most important to express definitely and clearly the method of calculating interest on unpaid balances, but many forms of contract are ambiguous in this respect. For instance, they usually conta...
-Section 141. Unearned Interest - Journal Entries
The form of mortgage under discussion necessitates a form of journal entry that will meet special conditions, inasmuch as it should show the principal and all the interest, both being included in the ...
-Section 142. Interest Accrued Not Due
When preparing a balance sheet and other accompanying statements, it is frequently proper to show thereon items for interest accrued but not due, in order to arrive at the actual condition of the busi...
-Chapter XX. Earned Profits And Book Profits. Section 143. Book Profits
So far, the consideration of profits from sale of real property has been confined to the methods of bringing them on the books of account. The present chapter will consider how much of these book pro...
-Section 144. Gains Distinguished From Earned Profits
The distinction between gains and earned profit can be made clearer by the use of a concrete example, which will also afford a comparison of the various methods of dealing with profits. Assume that a ...
-Section 145. Rule For Calculating Earned Profits
Admitting that all the profit is not earned until all the payments are made, it follows that the profits are earned in proportion as the payments are made. In other words, the earned profit bears the ...
-Section 146. Anticipation Of Earned Profits
In order to show the possible dangers arising from regarding as earned all the profits resulting from a sale when only a part (say one-half) of the selling price has actually been paid in, the example...
-Section 147. Equity As A Basis For The Calculation Of Profits
The following case occurred in actual practice, and is given here because it illustrates an apparent divergence from the rules suggested. John Doe owned a house which cost him $8,000, and on which th...
-Chapter XXI. Cancellations Of Time Sales. Section 148. Time Sales And Cancellations
In every business where payments are made on an instal ment plan, it is inevitable that there should be a certain number of lapses; and the real estate business is no exception to this rule. If such a...
-Section 149. Amount Of First Payment
The amount of the first payment, except in special cases, such as unimproved, suburban, and subdivision properties, should usually be a fixed percentage of the purchase price, and sufficient to cover ...
-Section 150. Payments In Arrears
It is even more difficult to give any general rule regulating the amount of time to be allowed delinquents. No banker would arbitrarily decide that all his loans and discounts should receive 90 days' ...
-Section 151. Accounting Treatment Of Cancellations
Let us assume that it is desired to cancel a contract, the original amount of which was $3,600, $900 being profit and the payments amounting in all to $400; i.e., the original amount of $3,600 has bee...
-Section 152. Erroneous Cancellation Entries
This matter is discussed in some detail for the reason that many bookkeepers make incorrect entries when closing out contract accounts, usually reasoning as follows: The contract balance is $3,200, t...
-Section 153. Cancellation Profits Account
It will be seen that the correct entry calls for a new account, Cancellation Profits, which is intended to receive the forfeited profits from all classes of time sales which may be cancelled during ...
-Section 154. Cancellation Of Subdivision Sales
In the case of subdivision sales, the same principles apply, but the data is secured in a different manner. Take for example a lot in Eureka Gardens subdivision sold for $240, yielding a profit of $1...
-Chapter XXII. Subdivision, Development, And Suburban Properties. Section 155. Acquirement
While subdivision properties may be acquired in the usual manner by a deed of conveyance paid for by cash or by a mortgage payable, the method employed sometimes is quite different. The concern sellin...
-Section 156. Release Of Lots From Encumbrances
When the concern does not own an unencumbered title, it is usual to make some definite arrangement under which the owner agrees to convey, or the mortgagee to release, such lots as are paid for in ful...
-Section 157. Cost Price Of Property
Other points of importance are the ascertainment of the cost price and the making of some definite provision for changes in this cost. The cost price of the land should include the purchase price, leg...
-Section 158. Cost Per Lot
If these improvements are completed at the time the sales begin, the face of the books will show the total cost, and this can be apportioned to each lot. Where lots are fairly uniform, this may be don...
-Section 159. Cost Price When Improvements Are Incomplete
Unfortunately for the accountant, it is often decided to place lots on the market before all the contemplated improvements have been completed. In such cases the books will show a certain cost price w...
-Section 160. "Constant Cost Price"
If the above plan is followed, a fixed cost price is obtainable, which should remain in force until the books are closed, when it can be verified or changed if necessary. The realized profits depend o...
-Section 161. Comparison Of Cost Finding Methods
It should be clearly understood that the frequent revision of the cost price of lots is not an inaccurate method, for the final results of the two methods are identical. This can best be shown by the ...
-Section 162. Check On Unsold Lots
In the case of journal entries relating to the opening or cancelling of contracts, a valuable check on the unsold lots may be obtained by the following simple means: 1. Rule a special column on each ...
-Section 163. Subdivision Property Expenses
Among the expenses incidental to the development of a large subdivision property,charges will frequently be found for such items as steamboat for transporting purchasers, cost of building a hotel fo...
-Section 164. Advertising Expense
There is still another class of expense which calls for special treatment and which may be called Advertising Expense. It consists of sums spent for newspaper and pamphlet advertisements, pictures, ...
-Section 165. Advances To Settlers
Arrangements are sometimes made, in connection with subdivision properties, to advance to the settlers actually on the ground the cost of certain improvements. In one particular case in the writer's e...
-Chapter XXIII. Earned Profits On Subdivision, Development, And Suburban Properties. Section 166. Determination Of Earned Profits
While the principle upon which earned profits on subdivision sales are determined is simple (See SectionSection 144, 145), difficulties often arise in practice. For instance, it frequently happens tha...
-Section 167. The Cost Price
The cost price is discussed in Chapters X and XI. This price, however, is not necessarily uniform throughout an entire tract. Owing to their situation, some parts sell for a higher price. Sometimes on...
-Section 168. The Selling Price
The average selling price is more difficult to determine, for it seldom happens that all the lots are sold at the same price. Corner lots and the larger lots command a higher price than others. Moreov...
-Section 169. The Average Profit
The average profit is the difference between the average selling price and the average cost, and is represented by the following formula: Original amount of contracts / Number of lots in contracts - ...
-Section 170. Amount Of Payments Actually Made
The amount paid on any one series of outstanding contracts may not be readily ascertained from the balance of the general ledger account, which includes cancellations as well as payments upon contract...
-Section 171. Reserve Profit Account
There is, however, a modification of this method of averaging profits which is preferable. In practice, the auditor may be unable to check every small item in all the accounts connected with these con...
-Section 172. Application Of Rule
In order to prove the correctness of this rule, and also to show more clearly the various details, refer to the illustration in SectionSection 144 and 145, and assume that, instead of this property be...
-Section 170
(d) is the average profit per lot, obtained by reducing the following formula: Original amount of open contracts / Number of open contracts cost per lot Earned profits Earned Profits under Example ...
-Section 173. Alternative Methods
It may be worth while, in passing, to mention a few methods of calculating earned profits not based on the principles above stated and to show the possible difficulties or errors which may arise in re...
-Section 174. Special Subdivision Ledger
It is frequently difficult to ascertain the earned profits from subdivision property, owing to the large number of items and to the various causes explained above. Special forms of ledger (Forms 11, 1...
-Section 175. Use Of Special Ledger
There is no difficulty in transferring to the special ledger shown in Form 11 (Section 20) or Form 15 (Section 23) a set of accounts which have been kept in ordinary ledger form, the procedure being a...
-Section 176. Holding Subdivision Properties
Subdivision properties are held under similar conditions and subject to the same rules as any general property. The only difference in treatment required is the frequent verification of the plats or l...
-Chapter XXIV. Selling Contracts. Section 177. Definition Of Selling Contract
A selling contract is an agreement between the owner of land and an agent who undertakes the sale of his property. Under such a contract the concern is therefore an agent, usually acting under a spe...
-Section 178. Classes Of Selling Contracts
The following examples are given as typical selling contracts: 1. A contract under which the agent undertakes to sell certain described property, such as lots, at an average price per lot, and to rem...
-Section 179. Treatment Of Selling Contracts In The Accounts
Under all forms of selling contracts, the selling price of lots sold is treated as an asset, and the payment due to the owner as a liability, although the liability is contingent upon the completion o...
-Chapter XXV. Analysis Of A Typical Trial Balance. Section 180. Clean Bookkeeping
Bookkeeping has been defined as a systematic record of business transactions in a form conveniently available for reference with a view to ascertaining with the minimum amount of trouble at any time:...
-Section 181. A Typical Trial Balance
The trial balance shown on pages 222-225 brings in examples of all the types of accounts usually required in real estate accounting. It affords a convenient basis for the study of such account...
-Section 182. (1) Accounts Payable (Cr. $3,420)
If business is conducted on a cash basis and all current accounts are paid immediately on approval, it may not be necessary to carry the Accounts Payable account throughout the year; but when a balanc...
-Section 183. (2) Advertising (Dr. $12,114.02)
This account should include all charges for newspaper advertising, pamphlets, maps, and postage thereon, advertising agents, etc. The total is carried to Profit and Loss. ...
-Section 184. (3) Automobiles (Dr. $1,138.02)
This account is intended to represent the actual value of motor cars owned by the concern. Three of the cars being new, no depreciation was taken on them. A fourth car had been reduced annually by 25%...
-Section 185. (4) Bills Payable (Cr. $81,340)
A schedule should be prepared showing the items composing the total of this account, the due date of each note and an indication of the purpose for which it was given, e.g., In payment for Barnes lan...
-Section 186. (5) Bills Receivable (Dr. $1,250)
This account also should be accompanied by a schedule similar to that mentioned above. Each item should be examined, and if any one appears to be of doubtful value, it should be written off to Profit ...
-Section 187. (6) Brick-Yard Royalties (Cr. $1,300)
This is a typical royalty account, a brick-yard having leased a portion of certain property for the purpose of working a clay bed thereon, paying as rental a specified royalty on every thousand bricks...
-Section 188. (7) Building - Green (Dr. $1,250)
This account shows the cost to date of a house which the concern agreed to build for Mr. Green, the final cost (not to exceed $1,500) to be charged to his Contract. The house not yet being completed...
-Section 189. (8) Building - Black (Dr. $72.50)
This account represents a house which it was agreed should be built for Mr. Black for $2,500, that amount being included in the mortgage which he has given, and which was placed originally to the cred...
-Section 190. (9) Building - Brown (Cr. $325)
This account is for a house to be built for Mr. Brown at a cost of $2,000, which amount was charged to his contract or mortgage account. The house is not yet completed, and the unpaid balance of $325 ...
-Section 191. (10) Cancellation Profits (Cr. $3,400)
This account has been credited during the past year with all payments made on sales which have been cancelled. (See Section 153.) These payments having been actually received, the amount goes to the P...
-Section 192. (11) Capital Stock (Cr. $305,000)
The balance of this account should be verified and proved to be in accordance with the capital stock certificates outstanding. (See Section 296, also Section 251.) A list of stockholders should be pre...
-Section 193. (12) Charity (Dr. $37)
The name explains the account, which shows all amounts given to charity. The total is carried to Profit and Loss. ...
-Section 194. (13) Commissions Earned (Cr. $5,220) (14) Commissions Paid (Dr. $8,325)
These accounts represent cash receipts and expenditures, or their equivalents, received by the concern acting as broker, or paid by the concern to agents who have sold its property. It is far better t...
-Section 195. (15) Contracts (Dr. $165,770)
This account includes all general sales on the instalment plan, exclusive of those secured by mortgage and of those described as subdivision sales. The balance must agree with the total of the Contr...
-Section 196. (16) Contracts Payable (Cr. $8,002.40)
These are contracts made or assumed by the concern, for which it is responsible. They usually represent the purchase price on properties which have been acquired. If they are numerous, a sub-ledger mu...
-Section 197. (17) Dawes Purchase (Dr. $8,640)
This account represents the purchase price of a tract acquired from Mr. Dawes. The property is to be improved, but the plans for this work are not yet complete, and, since the matter is being held in ...
-Section 198. (18) Directors' Meetings (Dr. $185)
The principle of paying fees to directors for attending meetings is spreading in this country, and if it is true that a thing is worth just what is paid for it, the practice is a good one. At all even...
-Section 199. (19) Unpaid Dividends (Cr. $520)
Immediately after the close of the previous year, a dividend was declared which amounted to $27,142, and this amount was debited through the journal to Profit and Loss and credited to Unpaid Dividend...
-Section 200. Eureka Gardens Accounts
(20) Contracts, Dr. $2,460 (21) Purchase, Cr. 1,375 (22) Gains, Cr. 1,330 (23) Expense, Dr. 40 These...
-Section 201. (24) Expense, General (Dr. $12,440) This Account Covers Such Items As: Office Rent Telephones Telegrams
Branch office rent and expenses Motor car repairs The items chargeable to this account are of great variety. It is well in each case to have a detailed list made and perhaps written on the head of th...
-Section 202. (25) Expense, Legal (Dr. $1,522)
This account includes attorneys' fees, together with recording and other legal fees which cannot properly be charged to the various customers. ...
-Section 203. (26) Expense, Mortgage (Dr. $548.50)
This account shows all expenditures made on account of mortgages receivable and chargeable against specific mortgages, being entered in the mortgages receivable sub-ledger as charges to the income acc...
-Section 204. Fairmount Accounts
(27) Contracts, Dr. $1,915 (28) Purchase, Cr. 1,200 (29) Gains, Cr. 1,200 (30) Expense, Dr. 5795 The...
-Section 205. (31) Gain On Sales (Cr. $88,045.84)
The method of treating this account has been fully described in Chapter XIII (Profits From Real Estate Sales. Section 77. Definition Of Profits). On completing the calculations as there indicated, it ...
-Section 206. Grandville Accounts
(32) Contracts, Dr. $1,827.42 (33) Purchase, Dr. 5,378.oo (34) Gains, Cr. 1,056.80 These accounts relate to a subdivision ow...
-Section 207. (35) Handbook (Dr. $985)
This account represents the cost of an advertising work published for free distribution. As few copies have yet left the office, the amount is allowed to remain in the balance sheet. ...
-Section 208. (36) Hilton, A. B. (Dr. $130)
This account represents advances made to a salesman, and is to be deducted from future commissions. It is typical of a number of accounts which appear in such trial balances. The account will be close...
-Section 209. (37) Improvements (Dr. $10,000)
This account is intended to contain all expenditures for improvements as suggested in Section 58. As such disbursements are made they are immediately posted in the property ledger against the piece of...
-Section 210. (38) Fire Insurance, Etc. (Dr. $711.28) (39) Mortgage Insurance (Dr. $283.75)
The first of these accounts represents the amount paid by the concern for insurance on its own property against fire and tornado and on rents. Insurance paid on contracts should be charged direct to t...
-Section 211. (40) Interest Earned (Cr. $9,840) (41) Interest Paid (Dr. $4,640)
These accounts afford another example of the advisability of keeping two ledger accounts for items not infrequently kept in one account. Interest Earned is credited with the interest charged to the ...
-Section 212. (42) Mortgage Interest Payable (Dr. $11,120) (43) Overdue Mortgage Interest Payable (Cr. $120)
These two accounts receive all entries relating to interest on mortgages payable, the form of entry appearing in Section 134. Account No. 43 shows that there is overdue $120 of interest, which is paya...
-Section 213. (44) Mortgage Interest Receivable (Cr. $2,400) (45) Overdue Mortgage Interest Receivable (Dr. $1,178.10)
These items are similar to, but in their nature the reverse of, accounts Nos. 42 and 43. ...
-Section 214. (46) Interest Unearned (Cr. $3,529.82)
This account is described in Section 136 et seq., and refers to cases where interest is included in the principal of Mortgages Receivable and Contracts. The method of determining the amount which ...
-Section 215. (47) Judgments (Dr. $925)
This account represents an amount due from a contractor who failed to carry out his agreements. Suit was instituted and a judgment obtained, which is of record and which it is believed will ultimately...
-Section 216. Kingslake Accounts
(48) Contracts, Dr. $61,799.88 (49) Purchase (Section 217), Dr. 1,272.11 (50) Gains (Section 218), Cr. 106,902.00 (50) ...
-Section 217. (49) Kingslake Purchase (Dr. $1,272.11) (52) Kingslake Lots (Dr. $751.90)
This account represents the cost of adjoining land which the concern thought it wise to buy and for which it paid in cash upon receiving a deed. As this land is included in the general plat, it seemed...
-Section 218. (50) Kingslake Gains (Cr. $106,902)
It will be noticed that the gains are larger than the contracts outstanding. This is accounted for by the fact that, during previous periods, no part of the Gains account had been carried to Profits, ...
-Section 219. (51) Kingslake Expense (Dr. $83,370.60)
The balance of this account was so large that it called for special examination. It was found that all the items were for expenditures covered by agreements, under which they are repayable to the conc...
-Section 220. (53) Kingslake Commissions (Dr. $461.40)
This amount, being a part of the expenses chargeable against the property, was written off to Profit and Loss account. ...
-Section 221. Ladore Accounts
(55) Contracts, Dr. $30,506.00 (56) Purchase, Dr. 38,840.00 (57) Gains, Cr. 25,470.00 (58) Expense, Dr. 4,2...
-Section 222. (59) Ladore Commissions (Cr. $1,580)
These are commissions promised to agents who have made time sales. The liability for them is therefore contingent upon those sales being completed. ...
-Section 223. (60) Ladore Town Lots (Dr. $10,560)
At the beginning of the sale of Ladore lots, the concern offered to give a townsite lot to each purchaser of an acre lot. This arrangement is not uncommon and calls for special entries on the books. T...
-Section 224. (61) Life Insurance (Dr. $2,120)
It has been the custom of late years with many owners, especially in connection with subdivision properties, to guarantee that, in event of the decease of any purchaser during the life of a contract, ...
-Chapter XXVI. Analysis Of A Typical Trial Balance. Section 225. Malvern Hill Accounts
(62) Contracts, Dr. $37.467.00 (63) Purchase, Dr. 34,057.00 (64) Gains, Cr. 23,022.00 (65) Expense, Dr. 7.2...
-Section 226. Malvern Hill Determination Of Profits
As the existing contracts were more than half paid up, the question then arose as to what profit should be carried to Profit and Loss, and the following plan was adopted as a compromise, recourse bein...
-Section 227. (66) Manning, R. (Cr. $212)
Mr. Manning is a customer who owns a number of houses from which the concern collects rent, making monthly returns to him. $212 represents the net balance of rents for the last month, which has not ye...
-Section 228. (68) Mortgages Payable (Cr. $257,422.30) (69) Mortgages Receivable (Dr. $45,000)
The nature of these accounts has been described in Section 52 and Chapter XVI (Time Sales - Mortgages. Section 114. Time Sales) and the details of the total are shown in a schedule accompanying the ba...
-Section 229. (67) Mortgage Deficiency Account (Cr. $2,000) (70) Mortgages In Settlement (Dr. $5,250)
These accounts represent mortgages receivable to the amount of $5,250, which are in course of foreclosure and on which it is expected that a loss of $2,000 will be sustained (Section121). ...
-Section 230. (71) Office Furniture (Dr. $3,200) (72) Office Fixtures (Dr. $3,156)
These accounts represent the actual cost of the articles described, less an annual depreciation at the rate of 15% on the outstanding balances. The amount of depreciation is frequently a matter of arg...
-Section 231. (73) Options Granted (Cr. $5,200) (74) Options Held (Dr. $3,400)
Options Granted are described in Section 130. A statement accompanies the balance sheet, giving the number, name, property, and amount of each such option. Inasmuch as they have not yet been turned ...
-Section 232. Parkville Accounts
(75) Contracts, Dr. $18,842.00 (76) Purchase, Cr. 8,725.00 (77) Gains, Cr. 9,796.00 (78) Expense, Dr. 783.2...
-Section 233. (80) Petty Cash (Dr. $75)
The method of keeping petty cash is described in Section 14. $75 was the amount originally placed in the hands of the cashier. ...
-Section 234. (81) Postage (Dr. $725)
This title explains itself, it being understood that this amount is the current office postage and does not include the amount paid for sending out circulars in quantity, which should be charged to Ad...
-Section 235. (82) Profit And Loss (Cr. $75,405.10)
The amount shown by this account is, of course, the balance of Profit and Loss carried over from the last balance sheet. Some bookkeepers have a habit of making entries in this account from time to ti...
-Section 236. (83) Profits (Cr. $8,242.10)
The nature of this account and the method of keeping it are explained in Section 82. As it represents profits already earned, the entire amount is transferred to the credit of Profit and Loss. ...
-Section 237. Prospect Park Accounts
(84) Contracts, Dr. $1,158.98 (85) Gains, Cr. 1,576.00 (86) Purchase, Dr. 3,402.00 (87) Expense, Dr. 85...
-Section 238. (88) Real Estate ( Dr. $473,130.13 )
This account represents (as explained in Section64) the actual cost of all real estate owned by the concern, except such subdivision tracts as are carried in separate accounts as for example, Prospec...
-Section 239. (89) Rent Account (Cr. $5,780)
The Rent account is described in Chapter XIV (Profits From Rents. Section 93. Rent). The balance here shown represents the rents collected during the period from properties owned by the concern, and i...
-Section 240. (90) Repairs (Dr. $1,245.60)
This is an offset account to account No. 89, and represents the total amount spent by the concern on repairs to its property during the period. The total amount is charged to Profit and Loss. It is th...
-Section 241. (91) Rinders, T. (Dr. $280)
(92) Rinders, T., Reserve (Cr. $525.33) These accounts are opened in connection with the Prospect Park property, accounts Nos. 84 to 87. As stated, Mr. Rinders is to be credited with one-third of the...
-Section 242. (93) Robinson, J., Trustee (Cr. $210,418.52)
This is one of the various trust accounts so often found on the books of real estate concerns. In this particular case the concern had acquired a large number of properties, assuming the mortgages out...
-Section 243. (94) Salaries (Dr. $23,805)
(106) Stationery and Printing (Dr. $472) These accounts speak for themselves, and the entire balance in each case is carried direct to the debit of Profit and Loss. ...
-Section 244. South Bay Accounts
(95) Farm Contracts, Dr. $212,814.00 (96) Gains, Cr. 239,657.65 (97) Purchase, Dr. 95,580.00 (98) Villa Contracts...
-Section 245. (105) Sperry, J. M. (Dr. $422)
These are advances made to a traveling agent, and can be charged into Accounts Receivable. ...
-Section 246. (107) Stumpage (Cr. $6,250)
This account represents various sums collected during the preceding period as stumpage on timber lands owned by the concern, each item being credited on the real estate ledger to the particular tract ...
-Section 247. (108) Suspense (Dr. $750)
The uses to which a suspense account can properly be put are many, and it is usually necessary to have such an account on the books. In this particular instance the main office had paid a draft for $7...
-Section 248. (109) Taxes (Dr. $398.63)
This account is carried direct to the debit of Profit and Loss, as it represents taxes for a past period. ...
-Section 249. (No) Mortgage Taxes (Dr. $308.15)
This represents taxes paid for mortgagors by the concern, and is carried among the assets on the balance sheet. ...
-Section 250. Torbay Heights Accounts
(111) Contracts, Dr. $11,283.00 (112) Purchase, Cr. 4,450.00 (113) Gains, Cr. 5,220.00 (114) Townley, J. R., Cr....
-Section 251. (115) Treasury Stock (Dr. $22,000)
It had been the practice of this particular concern during past years to accept its own capital stock in payment for its real estate, and in this way it has recovered $22,000 of the stock originally i...
-Section 252. (116) Cash - Superintendent (Dr. $120)
This account represents an amount of money for current expenses, placed in the hands of the superintendent of one of the subdivisions, the account on the general ledger remaining unchanged from month ...
-Section 253. (117) Cash In Bank (Dr. $7,990.40)
This account represents balances in several banks, which have, of course, been verified by comparison of the cash book with the respective bank pass-books. As no cash account is carried in the ledger ...
-Section 254. Preparation Of Balance Sheet
Having now considered and classified all the items appearing on the trial balance, the preparation of the balance sheet is a simple matter, provided its nature and purposes are clearly understood. The...
-Chapter XXVII. The Trial Balance And Monthly Statements. Section 255. The Purpose Of A Monthly Trial Balance
All good bookkeepers take off frequent trial balances, and many hours are sometimes occupied in the search for small errors in posting, adding, or balancing. When this trial balance is completed, what...
-Section 256. The Monthly Statement
These acknowledged facts show that a large amount of labor is expended to obtain something of comparatively small value, or, rather, something of which little practical use is made. This condition pre...
-Section 257. Advantages Of The Monthly Statement
Inasmuch as such a statement shows all ledger balances, it is a trial balance; it is also much more, as will be seen if we consider a few of the accounts shown in the statement on pages 267 to 270. ...
-Section 258. Method Of Preparing The Monthly Statement
On pages 267 to 271 the same trial balance is shown as was analyzed in Chapters XXV and XXVI. To the figures there shown have been added the total debit and total credit appearing in each account duri...
-Section 259. Determination Of Earned Profits
Let us consider the methods by which such results may be obtained. It will be seen that all general expenses are included under Group B. The figures are actual and require no explanation. They include...
-Section 260. Comparison Of Monthly Statements
While each of these monthly statements is of value per se, their value as a whole increases each month on account of the ready means they afford of observing the fluctuations of the business and of ma...
-Section 261. A. General Accounts
Month's Business Acct. Nos. Accounts Balances Dr. Cr. Dr. Cr. ............. ............. 1 Accounts Payable ...........
-Section 262. B. Expense
Month's Business Acct. Nos. Accounts Balances Dr. Cr. Dr. Cr. $783.03 ............. 2 Advertising $12,114.02 .......
-Section 263. C. Earnings
Month's Business Acct. Nos. Accounts Balances Dr. Cr. Dr. Cr. ............. $322.00 10 Cancellation Profits .............
-Section 264. D. Real Estate
Month's Business Acct. Nos. Accounts Balances Dr. Cr. Dr. Cr. ............. $105.00 6 Brickyard Royalties ...............
-Section 265. E. Selling Contracts
Month's Business Acct. Nos. Accounts Balances Dr. Cr. Dr. Cr. ............. ............. 21 Eureka Gardens Purchase ....
-Section 266. F. Contracts
Month's Business Acct. Nos. Accounts Balances Dr. Cr. Dr. Cr. $8,539.55 $7,229.04 15 Contracts - General $165,770.00 ...
-Section 267. G. Profits In Reserve
Month's Business Acct. Nos. Accounts Balances Dr. Cr. Dr. Cr. ............. ............. 22 Eureka Gardens Gains .......
-Section 268. H. Summary
Month's Business Balances Dr. Cr. Dr. Cr. $29,638.09 $37,079.31 General Accounts $94,989.92 $1,016,855.65 7,880.12 ...
-Section 269. I. Sales And Cancellations
Sales New Contracts Profits Contracts: General............................................... $8,539.55 $3,140.00 Kingslake...........
-Section 270. J. Cash Receipts For The Month
Contracts: General......................................... $7,229.04 Cancelled................................. 400.00 $6,829.04 Eureka Gar...
-Section 271. K. Earned Profits - Cash Receipts
It has been shown in Section 144 that earned profits vary-directly with, and depend solely upon, the cash receipts. An analysis of the accounts of the concern for the previous year shows that the earn...
-Chapter XXVIII. The Balance Sheet, The Annual Report, And Schedules. Section 272. Nature Of The Balance Sheet
The term balance sheet is the sole reminder in modern accountancy of what in former days was regarded as an essential function, viz., that of balancing the accounts. At the end of a fiscal period ...
-Section 273. Continental And English Forms Of Balance Sheet
The general form of balance sheet known as the Continental form (or, in Scotland, as the Scotch form), places the assets on the left-hand and the liabilities on the right. The English form reverses th...
-Section 274. Arrangement Of Balance Sheet Items
The balance sheets of transportation companies, banks, trust companies, insurance companies, etc., are regulated by statute or by custom, and need not be considered here. In all balance sheets, howeve...
-Section 275. Schedules Accompanying A Balance Sheet
It is evident that if all items were shown on the balance sheet the very purpose of that sheet would be defeated, for its conciseness would be lost. For this reason totals are used, the details compos...
-Section 276. Form Of Balance Sheet
The balance sheet of the Alpha Land Company is shown on the following pages. This is given complete, but is followed by the same balance sheet in condensed form. THE ALPHA BALANCE SHEET Assets...
-Section 277. Schedules To Accompany Annual Report
We now come to another class of schedules, which, though accompanying a balance sheet, are not so much a part of it as of an annual report. The form of such a report must vary with the nature and size...
-Chapter XXIX. Real Estate Audits. Section 278. Real Estate Inventories
Before entering upon the details of auditing real estate accounts, it is well to consider the points wherein such an audit differs from that of a mercantile or manufacturing concern. In a general way,...
-Section 279. Verification Of Real Estate Assets
In the last-named respect, a real estate audit resembles that of a bank or a trust company; and it is evident that any bank auditor would be guilty of grave dereliction of duty if he failed to satisfy...
-Section 280. Examination Of Records
If further evidence of the nature and condition of titles is required, it is usually practicable to have the proper county or other official furnish periodical lists of all papers recorded with him in...
-Section 281. Mortgage Frauds
Another fraud frequently practiced is the multiplying of mortgages on the same piece of property. This can be effectively guarded against by proper entries on the real estate ledger, by the record of ...
-Section 282. Details Of An Audit
The complete audit of such a concern as is represented in the typical trial balance shown in Chapter XXV (Analysis Of A Typical Trial Balance. Section 180. Clean Bookkeeping) would include a verificat...
-Section 283. Methods Of Conducting An Audit
Owing to the number of schedules, trial balances, calculations of earned profits, verification of subdivision properties, etc., the working sheets of an audit accumulate very quickly if the concern is...
-Section 284. Audit Of Cash Receipts
The general cash receipts should be compared, item by item, with the carbon copies of the receipts given to the parties paying this cash, noting especially that each entry has been credited in the app...
-Section 285. Audit Of Cash Disbursements
As all disbursements are made by check, the returned checks themselves afford satisfactory proof of the expenditure of the various amounts shown. These checks should be signed by both the cashier and ...
-Section 286. Audit Of Property Ledger
As already stated, the careful auditing of the property ledger is a most important part of the auditor's work. He is not responsible for the actual value of real estate, nor for the validity of the ti...
-Section 287. Appraisals Of Real Estate
It is not unusual to engage expert appraisers to value lands, and these values are frequently shown on balance sheets in memorandum form. The auditor should compare such certificates with the property...
-Section 288. Mortgages Receivable
The cash transactions affecting this account are checked from the cash book, while the amount of the principal is obtained from the report of sales, from the property ledger, or from the journal. It ...
-Section 289. Commission Accounts
These accounts, and especially Commissions Paid, need careful examination. Commissions paid' usually arise from sales of the concern's property by outside agents, and the accounts should be so kept as...
-Section 290. Contracts
The general remarks under Mortgages Receivable (Section 288) apply equally to Contracts kept in the contracts sub-ledger, a similar schedule being prepared. ...
-Section 291. Auditing Subdivision Property
In the case of subdivision accounts, whenever a balance sheet is drawn up, there should invariably be prepared a detailed list showing lot and block numbers, or a corresponding description, of the lot...
-Section 292. Subdivision Sales
In the case of subdivision time sales where no interest is charged, the directions of Chapters XXI and XXIII give also the manner of auditing. If the special ledger (Form 15, Section 23) is used, the ...
-Section 293. Subdivision Histories
In cases where a concern deals with a number of subdivisions, the auditor will find it convenient to use the subdivision history described in Section35 (Form 31), entering thereon all the particulars ...
-Section 294. Equipment
Schedules of equipment should be prepared at the close of each fiscal period, in order to satisfy the auditor that the values are actually as represented. Depreciation should be charged on all items a...
-Section 295. Sundry Debtors
These call for no special comment. A schedule of them should accompany the balance sheet, and attention should be called to any which are in arrears. Bad debts should, of course, be written off in thi...
-Section 296. Capital Stock And Treasury Stock
The total certificates outstanding, as shown by the stock certificate book and stock register, should agree with the Capital Stock account, unless unpaid subscriptions exist. The details of checking t...
-Section 297. Mortgages Payable, Contracts Payable, Bills Payable, Sundry Creditors
The sub-ledgers for these credit accounts should be treated in a manner similar to that followed in the case of the corresponding debit accounts - Mortgages Receivable, etc. - on the other side of t...
-Section 298. Purchase Accounts
As these represent amounts payable to owners of land for property the concern has arranged to sell on time, they need careful examination, for differences with the owners frequently arise when the tim...
-Section 299. Unpaid Dividends
If a separate bank account be kept for payment of dividends, there should be no difficulty in ascertaining the amount of dividends remaining unpaid, by comparing the amount paid out with the total to ...
-Section 300. Rents And Repairs
The amount of detailed checking which these accounts require depends largely upon the excellence of the internal check in the office. The annual entry in the property ledger of the gross rents receive...
-Section 301. Reserve Accounts
These vary so greatly that no general directions can be given. They should be shown on the balance sheet in such manner as to indicate the nature or purpose of each account (Section 159). ...
-Section 302. Reserve Profits
The audit of this item varies according to the nature of the account and the manner of keeping it. Unless a form which is similar to Form 15 (Section 23) is used, the profits in a Gain on Sales accoun...
-Section 303. Profit And Loss Account
This account should not be disturbed between balance sheet periods. Any items which may be written off between these periods can be shown more clearly by using a Profits account as described in Sectio...
-Section 304. Auditing Time Sales
In order to facilitate the work of the auditor in obtaining the amount of the gain on sales which may be carried to Profit and Loss each year, the following plan has been worked out and has been used ...
-Section 305. Trustees' Accounts
The forms of these are so varied and so constantly increasing that it is useless to attempt to give even a list of them. It may be said in general that the details are usually described in a document ...
-Chapter XXX. Agents And Brokers, And Their Accounts. Section 306. Accounts For Office Buildings And Apartment Houses
Proper accounting for modern office and apartment buildings necessitates the maintenance of accounts which show the receipts from each office, store, apartment, flat, etc., and the total receipts from...
-Section 307. Monthly Reports
The form of monthly report rendered by an agent to his principal varies greatly. As a rule, where an owner places several pieces of property in the hands of an agent, Form 48 may be used. This stateme...
-Section 308. Brokers' Records
The scope of the present work precludes any complete treatment of real estate brokerage and the forms used therein. Under the head of Commissions (Section 309), a few simple and effective rules are ...
-Section 309. Commissions
Bookkeeping for commissions consists in its simplest form in merely recording, through the cash book, the commissions as collected. It is the custom, however, for brokers engaged in this class of busi...
-Chapter XXXI. Real Estate Organizations. Section 310. Abstract Companies
In some states there are so-called abstract companies, whose business it is to keep abstracts of public records and to prepare an abstract of title to any piece of property desired. In other states,...
-Section 311. Leasehold Companies
There is a class of concerns differing from agencies, sometimes known as leasehold companies, which rent from owners office buildings and similar properties, and operate them at their own risk and for...
-Section 312. Building And Loan Societies
While the number of these societies is perhaps decreasing-, many are still in active business. The details connected with their work, however, lie outside the limits of the real estate office and of t...
-Section 313. Cemeteries
As the business of a cemetery company or association is based upon dealings with land, it seems appropriate that the accounts of such concerns should be mentioned here. In the case of a cemetery compa...
-Section 314. Cemetery Subdivision Accounts
Cemetery accounts dealing with land present a problem very similar to that discussed in Chapters XXII and XXIII, under Subdivision Properties. As a rule, a tract of acreage land is bought and occasi...
-Chapter XXXII. Depreciation. Section 315. Depreciation Of Realty
In real estate affairs, depreciation, properly so called, applies to buildings or improvements only, and not to the land itself. It is true that land values frequently decrease, but such decrease is s...
-Section 316. Nature Of Depreciation
Depreciation is closely allied to the repairs, renewals, improvements, and wear and tear, which have already been considered. While repairs represent the re-establishment of a diminished value arising...
-Section 317. Systematic Treatment Of Depreciation
The Interstate Commerce Commission has been one of the most effective factors in the introduction of more scientific accounting methods in this country. This is not because of its legal status or of i...
-Section 318. Percentage Of Depreciation
It is impossible to adopt any fixed percentage of depreciation on a given class of buildings; for occupancy, construction, and locality play so large a part in determining the amount. For example, a f...
-Section 319. Calculation Of Depreciation
There are several distinct methods of calculating depreciation on the buildings; 1. By dividing the cost of the building by the number of years it is expected to last, and writing off each year an am...
-Section 320. Depreciation Vs. Appreciation
It is probably true in the case of many land companies, particularly those whose business is not chiefly in the older and larger cities, that there is ever present the knowledge that, while buildings ...
-Section 321. Depreciation On The Balance Sheet
When depreciation on buildings is taken on the books, there are at least two methods of treatment, e.g.: 1. To reduce the amount of the Real Estate account by the amount of the depreciation. 2. To o...
-Section 322. Depreciation On Leasehold Property
While the remarks already made apply to buildings on freehold lands, it is evident that they apply with even greater force to leasehold properties. Whether the leases are long or short, the sum of the...
-Chapter XXXIII. Insurance Records. Section 323. Expiration Register And Card System
The accountant should be careful to keep a record of the date on which each policy expires, and he should also see that every building in which the concern has any interest is properly insured. The in...
-Section 324. Life Insurance In Connection With Time Sales
It is only within the past few years that life insurance has become so closely connected with real estate as to warrant its mention in a work such as this. They sometimes, however, come into contact a...
-Section 325. Life Insurance In Connection With Mortgages Payable
Certain life insurance companies have in recent years inaugurated the practice of lending their surplus funds on mortgages at a low rate of interest and free of brokerage, on condition that the mortga...
-Chapter XXXIV. Rent Records; Building Accounts. Section 326. Rentals
Rent Records The work of the rent department is of such importance in so many offices that a special consideration of its accounts, in addition to the general discussion of rents in Chapter XIV (Prof...
-Section 327. Records Used
The first record is the rent register (Form 32) described in Section 37, and kept as therein indicated. Each house taken in charge should at once be entered on this record, and an account therefor imm...
-Section 328. Repairs
In some offices where many buildings are cared for, the amount of repair and building work demands a constant force of workmen, usually under a foreman. This frequently renders advisable the purchase ...
-Section 379. The Rent Ledger
From the rent cash book each item is posted to the rent ledger. Several forms of rent ledger are shown in Forms 36 to 38 (SectionSection 42, 43). There are also many other special forms of this ledger...
-Section 330. Arrangement Of Rent Ledger
The arrangement of the rent ledger depends upon the conditions and upon the taste of the individual who arranges it. If a bound ledger is used, all houses should be entered in a simple register giving...
-Section 331. Rent Collectors
In many instances it is necessary to employ collectors. As the salaries paid to collectors are usually not large enough to attract men of high clerical training, and as the work entails the entering o...
-Section 332. Vacant Houses
It is of importance that the office should be immediately informed of any renting premises which are vacant, and each collector should make a report of these every day. It is a common practice to keep...
-Section 333. Building Operations And Building Accounts
Building operations fall into two main classes: first, where buildings for the improvement of property are erected without having any particular purchaser in view; second, where buildings are construc...
-Section 334. Building Operations - Subdividing Costs
It is sometimes desired to analyze the cost of each building, especially for the purpose of comparing such costs with the estimates. This can very readily be done by preparing some such schedule as fo...
-Chapter XXXV. Taxes. Section 335. Entering Tax Payments On The Books
The method of paying taxes varies so greatly that no general rules can be given. In all cases, however, some form of tax receipt is obtained. Sometimes such a receipt bears full description of the lan...
-Section 336. Mortgage Taxes
It is essential, of course, that a concern which has outstanding a number of mortgages receivable should keep itself acquainted with the facts as to the payment of the taxes payable by the mortgagor, ...
-Section 337. Descriptions
Before leaving the subject of taxes, one other difficulty should be mentioned, and that is the various descriptions of the property used by the assessors and collectors. In the case of an irregular pi...
-Section 338. Federal Income Tax
In those cases where the fiscal year of the concern ends December 31, the annual return to be made in connection with the income tax is easily prepared from the balance sheet and its accompanying stat...
-Section 339. Distinction Between "Gains" And "Profits"
The published decisions of the Treasury Department up to this date require that all profits shown on the books in any year must be treated as income during that year. On the other hand, such profits a...
-Chapter XXXVI. Filing. Section 340. Scope Of Filing System
An important part of the work in a real estate office is that connected with filing the various papers and documents relating to the business so that each may be found without loss of time. A list of ...
-Section 341. Consecutive Numbering
The advantages of using consecutive numbers in real estate accounting are so great and so many that their adoption is in many cases essential. Let us first consider the instances where such numbers mu...
-Section 342. Sundry Documents
These papers are perhaps the most difficult of all to file in such a way that any particular one may be found quickly when necessary. After trying several methods, the writer has adopted the following...
-Section 343. Ticklers
In such a business as we have been considering, there are payments of interest to be made each month, as well as collections from mortgagors who are in arrears. In order to insure all such collections...









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