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 whatever by nature or artificial annexation inheres with it as a part of it or as the means of its enjoyment, as minerals on or in the earth, standing or running water, growing trees, permanent buildings, and fences."

Buildings, orchards, mines, etc., are therefore real estate and should be shown as such. It is not uncommon to find under the head of assets such an entry as -

Real Estate..................... $........

Buildings (or Improvements)............

This is incorrect, and should be of the form:

Real Estate:

Land........................ $........

Buildings............................

In the present work, for the sake of brevity, uniformity, and clearness, the following words and phrases are used with the limited meanings given. It will, of course, be understood that these limitations are purely arbitrary, and apply only to the use of these words and phrases in this book. This is especially true in regard to the terms "gains" and "profits," which are usually synonymous and interchangeable.

Contracts

This term is always applied to any kind of lease or agreement providing for the sale of real estate on an instalment plan.

Gain; Gain on Sales

These expressions are used to indicate the gross gain on sales, or book profits on transactions, in which the payment of the full purchase price is deferred and the profit has therefore not been fully realized. Such "gains" are not available for dividend-paying purposes until they have become "profits."

Profits; Realized Profits; Earned Profits

These terms are used to designate "gains" that have been earned or realized - gains that may be carried to the Profit and Loss account as distinguished from those which are sometimes called "book profits."

Time Sales

In this classification are included all sales which are not paid for in cash or its equivalent - sales in which the purchaser is allowed time for the completion of the payment for the property. They are also known as sales "on the instalment plan," "on deferred payments," etc.

Subdivision Properties

This term is used to indicate such properties as consist of a number of lots or farms, these together forming a whole tract. Such properties are also known as "allotment," "development," "suburban," etc., properties.

General Contracts

This classification is intended to include contracts given by the concern on properties other than subdivision properties, which frequently require more detailed accounting than subdivision contracts.

Contracts Payable

This term applies to contracts entered into by the concern for the purchase of property. They are therefore the reverse of the contracts considered under (1) on the preceding page. Contracts payable vary in form to meet the circumstances. While they may not carry any obligation to complete the purchase, and may be therefore in the nature of a contingent liability, they differ from the obligation toward the owner under a "selling contract," inasmuch as all payments made by the concern are forfeited if the contract payable is not completed.

Selling Contracts

By this term is meant a contract giving the concern the right to sell certain property owned by another, the title, as a rule, not passing through the concern.

The Concern

This term is used to designate the proprietor of the accounts under consideration; it may be a corporation, a partnership, or an individual acting either for himself or in a fiduciary capacity. In some cases "the concern" is an owner; in others, merely a broker or agent; so, as a matter of convenience, the word "concern" is used to cover all cases.