Real Estate Accounting & Transaction Reference Guide

This reference guide details the standard transaction lifecycles in real estate investing, using double-entry bookkeeping. It serves as a knowledge hub for understanding how transactions map to the Chart of Accounts (COA) in terms of Debits and Credits.

1. Core Principles: Debits & Credits in Real Estate

Real estate bookkeeping is governed by the accounting equation:

To adjust account balances, use the following rules:

2. Typical Chart of Accounts (GL Codes)

Real estate entities usually follow standard numerical classification bands:

• 1000–1999 (Assets)
• 1110 Bank Cash / Operating Account
• 1310.xxxx Escrow Reserves (Taxes & Insurance held by lender)
• 1500 Property, Plant & Equipment (Fixed Asset Roll-Up Header)
• 1505 Land (Non-depreciable asset)
• 1510 Building (Depreciable asset)
• 1520.FA-xxxx Building Improvements / CapEx (prefixed with FA-)
• 1530.FA-xxxx Land Improvements (Fences, paving, sidewalks)
• 1545.FA-xxxx Appliances & Carpeting
• 1550.FA-xxxx Furniture & Fixtures
• 1600 Accumulated Depreciation (Contra-Asset Roll-Up Header)
• 1610.FA-xxxx / 1620.FA-xxxx Accumulated Depreciation (Sub-accounts prefixed with FA-)
• 2000–2999 (Liabilities)
• 2100 Accounts Payable / Accrued Expenses
• 2200 Tenant Security Deposits Held
• 2400.xxxx Mortgage Loans (Principal balance)
• 2600.xxxx Accrued Mortgage Interest Payable
• 3000–3999 (Equity)
• 3100 Member Contributions
• 3200 Member Distributions
• 3300 Retained Earnings
• 4000–4999 (Revenues)
• 4010 Rental Income
• 4020 Late Fees & Other Tenant Revenues
• 4090 Utility Reimbursements (RUBS) / Other Income
• 5000–6999 (Expenses)
• 5010 Repairs and Maintenance
• 5030 Property Management Fees
• 5040 Property Taxes
• 5050 Insurance Expense
• 5060 Utilities (Water, Trash, Electric)
• 5080.xxxx Mortgage Interest Expense
• 5900 Depreciation Expense (Non-cash Roll-Up Header — Schedule E Line 18)
• 5910 / 5920 / 5945 Depreciation Expense (Category-specific non-cash sub-accounts)

3. Transaction Lifecycles & Journal Entries

A. Acquisition of Real Property

When purchasing a property, you capitalize the purchase price and closing costs, allocate values between land and building, and record the mortgage debt.

Journal Entry Example:

• Purchase Price: $500,000 (80% Building / 20% Land allocation)
• Mortgage Loan: $400,000
• Closing Costs (Capitalized): $10,005
• Cash Paid (Down payment + closing costs): $110,000

B. Rental Operations & Property Management

1. Receiving tenant security deposits

2. Monthly tenant rent receipt

3. Paying operating expenses (e.g., plumbing repair)

4. Returning security deposit (with partial withholding for damages)

• Total Deposit Held: $1,500
• Withheld for Repair/Cleaning Damages: $300
• Refund Paid to Tenant: $1,200

5. Writing off uncollectible / missed rent as a loss (Bad Debt Expense)

Scenario A: Writing Off Uncollectible Rent Balance (Accrual Basis)

• Unpaid Rent Balance Owed: $800

Scenario B: Applying Security Deposit to Cover Missed Rent

• Missed Rent Balance Owed: $800
• Security Deposit Applied: $800

C. Financing & Debt Service (Mortgage Payments)

Mortgage payments are split into three parts: Interest (expense), Principal (liability reduction), and Escrow reserves (asset).

Monthly Mortgage Payment Entry:

• Total Payment: $2,500
• Principal Portion: $500
• Interest Portion: $1,500
• Escrow Portion: $500

Mortgage Interest Accrual (Accrual Basis)

Under accrual accounting, interest expense is recognized in the period it is incurred, rather than when the cash payment is made. At month-end, the accrued interest is recorded as a liability, which is later cleared when the actual mortgage payment cash is paid.

Step 1: Accruing Interest at Month-End

• Interest Incurred: $1,500

Step 2: Mortgage Payment on Due Date

• Total Payment: $2,500
• Principal Portion: $500
• Interest Portion (Clearing Liability): $1,500
• Escrow Portion: $500

D. Fixed Assets & Depreciation

Capital Expenditures (CapEx), such as replacing a roof, are capitalized as assets and depreciated over their useful life, rather than expensed immediately.

1. Capitalizing a Property Improvement (e.g. New HVAC: $8,000)

2. Booking Monthly or Annual Depreciation

E. Refinancing

Refinancing involves paying off an old loan, establishing a new loan, and accounting for refinancing costs.

• Old Loan Paid Off: $350,000
• New Loan Established: $450,000
• Refi Closing Costs Paid: $5,000 (Capitalized over loan term)
• Net Cash Proceeds Received: $95,000

F. Disposition / Sale of Real Property

Upon selling the property, you remove the historical cost and accumulated depreciation from the books, account for transaction costs, and record the gain or loss on sale.

Sale Details:

• Sale Price: $650,000
• Original Book Cost (Building + Land): $500,000
• Accumulated Depreciation: $40,000
• Remaining Mortgage Balance: $380,000
• Selling Costs (Broker, escrow commissions): $35,000
• Net Cash Proceeds Received: $235,000
• Realized Gain Calculation:

G. Investor Capital Contributions & Distributions

LLC members inject capital to fund operations (Contributions) and pull cash out of the business from profits (Distributions).

1. Initial or Additional Partner Contribution (e.g. John Doe injects $50,000)

• Account Used: Member Contributions (3100.M1)

2. Cash Distribution to Partner (e.g. Distributing $5,000 to John Doe)

• Account Used: Member Distributions (3200.M1)

4. Master Transaction Lookup Table

Use this table as a quick reference sheet for day-to-day transactions.