An accounting method that records revenue when earned and expenses when incurred, regardless of when cash actually changes hands. Under accrual accounting, a landlord records a CAM expense when the service is performed, not when the vendor invoice is paid.
Accrual accounting, as defined under GAAP, recognizes revenue and expenses based on the occurrence of economic events rather than cash flows. In CAM reconciliations, accrual basis means the landlord includes expenses attributable to the reconciliation year even if payment occurs in the following year. This contrasts with cash basis, where only amounts actually paid during the year are included. The accounting method used can significantly affect the timing and amount of CAM charges. Most leases specify which method the landlord must use for reconciliation purposes.
A landlord using accrual accounting accrued $67,000 in "estimated December expenses" on the reconciliation statement but never paid the vendor for those services. The following year, the landlord accrued another December estimate, effectively double-counting an entire month's expenses by never reconciling accruals against actual payments.
Check your lease to see which accounting method the landlord is required to use. If accrual basis is specified, verify that prior-year accruals were reversed when actual payments came in. Request the year-end accrual schedule and compare it to the following year's beginning entries to ensure no double-counting.
Worried about accrual accounting in your lease?
Need to extract lease terms before your audit?
A CAM audit is only as accurate as your lease data. lextract.io extracts 126 structured fields from any commercial lease PDF: CAM definitions, pro-rata share, caps, base year, and audit rights. So you have the exact terms your landlord is supposed to follow.
Go to lextract.ioUpload two PDFs. 14 detection rules. Under 15 minutes. Free.
Find My OverchargesThis page provides general educational information. It is not legal advice and may not reflect the most current law in your state. Consult a licensed attorney for advice specific to your situation.
