Budgeting and Accounting Glossary Flashcards
Abatement
Free rent used as an incentive for prospective tenants.
Absolute net lease
All cost of owning, maintaining, and operating the building are paid for by the tenant and are usually paid directly to the providers of the services.
Accelerated Cost Recovery Systems (ACRS)
Prescribed by Congress between 1981 and 1986, the application of a certain percentage to the cost of an asset, resulting in the annual depreciation amount.
Account
An individual record of information and transactions related to each asset or liability and to each aspect of owner’s equity.
Accounting
The system of summarizing, interpreting, and communicating financial data.
Accounting Concepts
The global assumptions regarding the framework in which the entity operates.
Account Controls
Efforts to safeguard assets, assure accurate and reliable accounting data, promote operational efficiency, and adhere to prescribed management policies. Also called internal controls.
Accounting Cycles
Similar economic events converted into related types of transactions and processed through the system in similar ways.
Accounting Equation
The formula that states that assets equal liabilities plus owner’s equity.
Assets = Liabilities + Equity
Accounts Payable
Debts owed to other businesses and recorded as liabilities on the balance sheet.
Accounts Receivable
Monies earned, but not yet received, which are recorded as assets on the balance sheet.
Accrual Basis Accounting
A system that adjusts cash activity for current period activity that did not occur in cash for both revenue and expenditures.
Acid-Test Ratio
The ratio of quick assets to current liabilities. Also called quick ratio.
Ad Valorem
Taxes levied based on property value.
Additional Rent
Expense escalations and common area operating expense charges.
Amortization
The systematic allocation of the cost of an intangible asset from the balance sheet to an expense account on the cash basis income statement.
Anniversary Index
The value of a dollar of rent adjusted for inflation using the Consumer Price Index on each annual lease anniversary date.
Asset
Anything of value that is owned.
Audit
A formal review of an organization’s financial records.
Audit Opinion
A written statement concerning a company’s financial records. A qualified opinion specifies any reservations the auditor may have. An unqualified opinion indicates that the auditor has no such reservations, that the financial statements present fairly, in all material respects, the financial position of the company and the results of its operations.
Audit Trail
A record of every financial transaction associated with each property.
Average
The sum of numbers divided by the number of items.
Balance Sheet
A statement of the financial position of a business entity at a particular point in time, reflecting the accounting equation.
Bank Reconciliation
A comparison of cash receipts and disbursements by reconciling the ending cash balance to the bank records.
Base Amount
See expense stop.
Base income
Earnings received from the monthly recurring charges as stated in the lease.
Base Index
The value of a dollar of rent adjusted for inflation using the Consumer Price Index during the month of the lease commencement.
Base Rent
The monthly recurring charges as stated in the lease.
Base Year
A term used to calculate a base of operating expenses over which a tenant is expected to pay its proportionate share. Usually, the base year is the calendar year in which the lease is signed.
Bookkeeping
The process of recording and classifying transactions.
Budget
A plan or itemized summary for anticipated expenditures and revenues for a given time period.
Budget Variance
When actual income or expenses vary from the budgeted amount. A favorable variance indicates that income exceeds the budget, while a negative variance indicates that expenses exceeded budget.
Budgeting
The process of planning for the coordination of resources and expenditures.
Budgeting Capital
A means of setting aside reserves for major expenditures.
Cap
A limit on the amount of increase in any one year, usually expressed as a percentage.
Capital Assets
Major expenditures, such as property, plant, or equipment.
Capital Budgeting
The process of deciding whether or not to commit resources to a particular project based on the expectation of some future benefit.
Capital Improvement
An increase in the value of the owners’ assets accomplished by either increasing income or reducing expenses.
Capitalization
Transferring items purchased for use over an extended period of time from the cash basis income statement and recording them as assets on the balance sheet.
Capitalization Rate (CAP Rate)
Rate of return from a given property, which is determined by dividing the net operating income by its value or the amount of the initial investment.
Cash Book
Listing of all expenditures and receipts for each business day and the resulting effect on the bank balance.
Cash Controls
Procedures to ensure that cash is properly handled and to combat human error.
Cash Disbursement
Report listing cash activity paid out on a monthly basis.
Cash Expenditures Report
Summary of all cash items disbursed, matched with the corresponding chart of accounts code.
Cash Flow Statement
Report that describes the changes in cash from one period to the next.
Cash Journal
Listing of all expenditures and receipts for each business day and the resulting effect on the bank abalance.
Cash Method
Income and expenses are recorded only when they are received or paid out.
Cash Receipts
Report listing cash activity received on a daily or monthly basis.
Cash Receipts by Category
Summary of all cash items received, matched with corresponding chart of accounts code.
Cash Receipts Journal
Listing of revenues charged and received that are recorded on a daily basis.
Ceiling
Limit on the amount of increase in any one year usually expressed as a percentage. Also called a cap.
Charging Out
Method used to transfer inventory from the balance sheet to the cash basis income statement.
Chart of Accounts
Detailed listing of the accounts to which income and expenses are assigned.
Check Disbursement
Daily journal listing all expenditures.
Check Register
Detailed summary of all cash receipts and disbursements.
Commencement Letter
Document signed by a tenant and landlord specifying the exact date of the lease commencement and expiration.
Common Area Maintenance (CAM) Charges
Expenses incurred to maintain the sidewalks, parking lot, landscaping, and other common areas of the retail center or industrial park.
Common-size Comparative Statement
Statement assigning net sales a 100% value and then expressing each income statement item as a percentage of net sales.
Comparison Year
All Years subsequent to the base year of a lease.
Compounding
Calculation of interest on a principal amount, plus interest on the interest accrued during a previous period.
Consumer Price Index (CPI)
A government statistic used to measure inflation.
CPI Increase
An increase due to inflation that is effective on the anniversary date of the lease.
Contract
Legally enforceable document between two parties.
Cost Accounting
Process of classifying or segregating the costs of operations into logically similar or homogenous groups.
Covenant of Quiet Enjoyment
The tenant at all times during the lease term is granted peaceful and quiet possession of the premises without any encumbrance or hindrance by, from, or through the landlord.
Current Ratio
Relationship of a company’s current assets to its current liabilities.
Cutoff Date
Date marking the end of monthly activity.
Daily Journal
Book or listing of all expenditures and receipts posted on a daily basis.
Days’ Sales Uncollected
Calculation of the speed with which a company collects its accounts.
Debt Service
Principal and interest paid on a mortgage, bank financing, or other debt. Ground lease payments and amounts received from tenants for deposits are also shown under debt service.
Debt Service Ratio
The number of times that debt service can be paid from income.
Deed of Trust
Agreement between the loan issuer and holder covering assets.
Delinquency report
Monthly summary of overdue payments, amounts, actions taken to collect, and other information.
Depreciateion
Transferring the cost of long-term assets to the cash basis income statement over an estimated useful life.
Discounting
Dividing the future value by the sum an interest compunded each year.
Double-net (net-net) Lease
Type of lease in which tenants are required to pay separately for insurance and property taxes. Rental payments cover debt service, profit, and repairs.
Earning Power
Ability of a company to generate income.
Earnings per Share
Data used to evaluate the past performance of a business, project its future earnings, and weigh investment opportunities.
Employee Payroll
Process of accumulating employee data, such as claimed exemptions, wage rates, and benefits selections, then applying this information to the ongoing hourly information and generating paychecks on a periodic basis depending on pay period frequency.
Escalatable Costs
Expenses identified from the total operating costs that can increase.
Escalatable Expense
Any expense defined in the lease that is a part of the expenses subject to recovery by the landlord if the group of expenses increases over the amount defined as the base year or base level.
Excess of the Present Value
Equals the present value less the initial investment.
Expenditure Cycle
Those functions that acquire property, goods and services, and labor; pay for them; and classify, summarize, and report what is acquired and what is paid.
Expense Stop
Set amount established of operating expenses paid by the landlord. Any additional operating expenses are paid by the tenant. Also called a base amount.
Experience Exchange Report (EER)
A report from national surveys by BOMA International, Compiling per-square-foot operating information from all property owners.
Finance
Management of assets, usually money.
Financial Analysis
The process of evaluating businesses, projects, budgets, and other finance related entities to compare against those of other companies or against the company’s own historical performance. It often assesses profitability, solvency, liquidity, and stability.
Financial Ratios
Demonstrate the relationship between certain items on the income statement and the balance sheet.
Financial Statements
Set of reports that consists of an income statement, a balance sheet, and a statement of cash flows.
First-In-First-Out (FIFO) method
Method in which the oldest inventory items are recorded as sold first. But this does not necessarily mean that the exact oldest physical object has been tracked and sold. The cost associated with the inventory that was purchased first is the cost expensed first. With FIFO, the cost of inventory reported on the balance sheet represents the cost of the inventory most recently purchased.
Fixed Cost
Operating expense that can be controlled.
Fundamental Accounting Equation
The basic accounting formula that forms the logical basis for double entry accounting. The formula is: assets = liabilities + owner’s equity. The formula must balance at all times.
General Journal
Sheet or book where all transaction are recorded in chronological order.
General Ledger
Collective record of all the active accounts of the entire business in numerical order.
Generally Accepted Accounting Principles (GAAP)
The conventions and reporting mechanisms that the accounting profession uses to obtain uniform procedures and reports.
Gross Lease
Contract requiring the tenant to pay only base rent, without any additional rent or operating systems.
Ground Lease
Lease in which a tenant leases a parcel of vacant land and pays for all improvements made on the site.
Holding File
Computer file for all unpaid invoices.
Holdover Rent
An amount stated as multiple of the current rental rate. It is charged if the tenant continues to occupy space after the lease term ends.
Hybrid Accounting
Modified accrual accounting.
Income Statement
Statement prepared on an accrual basis, reporting net income or net loss from revenues earned and expenses incurred.
Internal Controls
See Accounting Controls
Internal Rate of Return (IRR)
Percentage rate that equates the present value of the future benefits to the present value of the capital outlays by ownership. The IRR is a measure of investment performance frequently used for acquisition purposes.
Inventory
Recording supplies purchased in bulk for use in future periods as assets on the balance sheet.
Inventory Turnover
The number of times average inventory is sold during an accounting period.
Job Order Costing
Information detailing numerous types of costs that can be incurred during the completion of a project and idenityfing possible problem areas.
Journal
Book where all transactions are ented in chronological order.
Journal Entry
Transfer of a cash transaction between the cash basis income statement and the balance sheet.
Journalize
Process of original entry of an individual debit or credit into the accounting system.
Kick-Out Clause
Lease clause that allows the landlord to terminate the lease when the tenant does not achieve the agreed-upon sales level after a designated period of time.
Last-In-Last-Out (LIFO) Method
Method in which the most recently produced items are recorded as sold first.
Lease
Written agreement between the tenant and the owner of a building for the use of space in that building for a period of time.
Lease Abstract
Form that reminds the reader of important clauses to review and flows well with the lease document.
Lease Expiration Report
List of each tenants lease in the order of tis expiration date, with the most current expirations first.
Lease-Up
Projecting Future leasing activity.
Leasing Commission
Amount an owner will pay to a broker to lease the space.
Letter of Credit
Check from the tenant’s bank, with expiration dates, that you hold rather than cash until it is determined that a claim will be filed on the tenant’s security.
Leverage Ratio
Ratio calculated by dividing the liabilities for which the fixed assets are pledged by the long-term assets’ book value.
Levy Rates
Taxes set by local governments.
Liability
Refers to a debt owed.
Liquidity
Ability of a company to meet its current obligations.
Loan Amortization
Repayment of a loan structed on a monthly bass, with part of the monthly payment applied to the interest and part applied to the principal.
Management Agreement
Document that outlines the scope of the work required to manage the property, the compensation, and the reporting requirements.
Matching
Recording expense incurred in earning revenues regardless of whether cash has been disbursed in their payments.
Median
Midpoint of data.
Mid-Range
Middle 50% of the data.
Mill Rates
See levy Rates.
Modified Accelerated Cost Recovery System ( MACRS)
Increase of the useful life of commercial nonresidential real property to 39 years, as effected by Congress in 1987
Modified Accrual Accounting
System in which some revenue and expense categories are declared on a cash basis and some are declared on an accrual basis. Also called hybrid accounting.
Modified Gross Lease (semigross)
Contract requiring the tenant to pay for building operating expenses over a preestablished amount. Generally, the lessor pays for common area maintenance charges up to a fixed amount.
Mortgage
Lien securing a note payable using real assets as collateral.
Net Lease
Type of lease that requires tenants to pay debt service, profit, repairs, and insurance to the lessor. Tenant must pay property taxes separately.
Net Present Value (NPV)
Difference between the present value of capital outlays and the present value of all future cash flow benefits. If positive, the NPV reflects a return on capital; if negative, not all capital has been returned. It is expressed as a dollar amount.
Nonoperating Costs
Expense items that are generally unrelated to the management, maintenance, and repair of the building.
Occupancy Audit
Method of allocating he latest increases in expense items, such as cleaning costs, to the most recent new tenant based on square feet occupied.
Operating Expense
Cost or expense incurred in operating and maintaining a building. Operating expenses include fixed and variable expense.
Operating Expense Clause
Lease clause that allows operating expenses, typically above a specified threshold, to be passed on to tenants on a prorated or agreed-upon basis.
Operating Expense Escalation
Reimbursement of increases in the owner’s cost of operating the property over the lease base year.
Option to Renew
Lease clause that gives the tenant the choice to extend his or her current lease for a specified period of time.
Owner’s Equity
Owners contributions either as an initial investment or as subsequent cash infusions.
Pass-Through
Agreement between the tenant and the owner concerning a method of increasing rent in addition to the CIP increase.
Payback Period
Time required for the money saved and/or the income generated by a project or product to equal its initial investment cost; determined as part of a life-cycle cost analysis.
Percentage Rent
Lease clause that allows the owner to recover additional advertising expenses by receiving a percentage in the success of the retail tenants.
Petty Cash
Limited amount of currency and coin on hand to pay for COD-type purchases.
Prepaid Expenses
Expenses paid in one lump sum that apply to future periods up to one year.
Present value
COmparison of the anticipated cash flow from an investment to the initial investment.
Pro Forma
Projection of operating expenses over an anticipated holding period.
Pro Rata Share
Portion of the escalatable cost pool the tenant pays when not occupying 100% of the building.
Processing
Actual execution of a series of tasks by which transactions are recognized, authorized, classified, recorded, summarized, and reported.
Productivity Rate
Comparison of hourly rates, determined by dividing price by hours.
Profit and Loss Statement (P&L statement)
Income statement providing an accurate accumulation of profit or loss via accrual adjustments.
Purchase Order
Legally binding document requesting specific goods or services.
Quick Ratio
See acid-test ratio
Real Estate Investment Trust (REIT)
Business entity that sells stock and invests proceeds in real estate as its primary business.
Reminder Notice
Courtesy source document for those tenants not using some type of automated payment software program.
Rent Roll
Quick reference of the entire property that contains information about each tenant.
Rent Roll Change Instructions
Form that includes basic rent roll categories as well as columns for current and new information.
Rent Steps
Scheduled increases in a tenant’s lease.
Request for Proposal (REP)
Document outlining the specific and detailed requirements of the contract. An RFP is used in the beginning of the contract negotiations.
Responsibility Reporting
Preparation of a portion of the budget, along with explanations for any budget variances, by the individual who is responsible for the items in that portion of the budget.
Return on Equity ( ROE)
Rate of return on the common stockholders equity.
Return on Fixed Assets
Income before debt service divided by average fixed assets.
Return on Investment
Total profit divided by the total amount originally invested to gain a profit. This method gauges performance of an investment based on total money invested, including both direct capital contributions and borrowed funds.
Revenue Cycle
Functions required to exchange products or services with customers for cash.
Semi-Variable Cost
Operating expense that displays both fixed and variable components.
Single-net Lease
Lease in which the tenant pays for all items included in a double-net lease except taxes. The lessor is exposed to greater financial risk if operating costs increase during the lease term.
Slippage
Difference between recoverable operating expenses and the actual operating costs.
Solvency
Ability of a company to meet its long-term obligations.
Stepped Rent
Lower-than-average first year rental rate that gradually increases through out a lease term.
Sublease
The lessee agrees to lease his or her space to a third party.
Submeter (submetering)
System that allows landlords with buildings that have a single meter to measure and bill tenants for their actual utility usage in the space they lease.
Sundry Billings
Misc charges
T-account
Skeleton version of the standard account form.
Tenant File
Information about each tenant, including a copy of the lease, a lease summary, and escalation clauses.
Tenant profile
Printout of the data from the lease abstract after it has been entered.
Tenant Roster
Alphabetical or numerical listing of the current tenants in the building.
Tickler System
Method used to remind the user of key dates and deadlines.
Time Value of Money
Notion that a rate of return should be expected from capital invested over a period of time.
Transaction
Financial event that is recognized within a financial statement or report.
Trial Balance
Listing of the balances of all accounts in the ledger, as of a specific date, to check the equality of debits and credits.
Triple-Net Lease (net-net-net)
Lease that requires tenants to pay separately for their share of all building operating expenses. Rental payments to the lessor only include debt service and basic profit.
Unamortized Asset
Remaining balance of a premium payment.
Uniform Commercial Code (UCC)
Uniform law governing commercial transactions that has been adopted in its entirety by all states except Louisiana. The UCC regulates sales of goods, secured transactions, investment securities, and a variety of documents used in commercial transactions.
Vacancy Report
Summary of a property’s vacancies. It includes the number and types of vacancies, all relevant dates, and other details about the space. It also includes the total dollar amount of vacancy loss and any steps, such as advertising and concessions, taken to rent the space.
Variable cost
Operating expense that cannot be controlled, it fluctuates.
Working Capital
The excess of a company’s current assets over its current liabilities.
Zero Base Budgeting
Practice in budgeting where history has limited, if any, bearing on the decision to budget in future years. All costs are assumed to be zero, and each must be proven to be necessary in order to be added to the budget.
