In commercial real estate, your accounting method tracks income and, most importantly, shapes how you understand performance, plan investments, and manage cash flow. Choosing between accrual and cash accounting can influence everything from how profitable your portfolio looks on paper to how easily you secure financing.
Let’s break down accrual vs cash accounting; the difference between these two commercial real estate accounting methods, how each affects your cash flow statements, and how STRATAFOLIO can help you manage both efficiently.
What Is Cash Accounting?
Cash accounting records income and expenses only when money actually changes hands. In other words, you record rent income when tenants pay you, not when invoices go out, and you log expenses when you pay bills, not when they’re incurred.
For example, if you collect rent on January 10th for December, that income appears in January under cash accounting.
Small investors, individual owners, or those managing just a few properties often prefer cash accounting because it’s simple and lines up closely with what they see in their bank account.
Why it works well:
- It’s easy to understand and manage.
- You always know how much cash you actually have on hand.
- Great for keeping tabs on short-term cash flow in commercial real estate.
What to watch out for:
- It doesn’t account for upcoming expenses or unpaid rent.
- Profits can look higher or lower than they really are, depending on when payments hit.
Cash accounting gives you a clear picture of your current liquidity, but it doesn’t always tell the full story of your portfolio’s health.
What Is Accrual Accounting?
Accrual accounting tracks income and expenses when they’re earned or incurred, not when the money actually hits or leaves your account. It follows Generally Accepted Accounting Principles (GAAP) and is the go-to method for larger property owners, REITs, and property management companies that need a clear, detailed view of their financial performance.
For example, if a tenant’s rent is due in December but they don’t pay until January, you’d still record that income in December because that’s when it was earned.
This method is a great fit for investors who own multiple properties, manage complex lease agreements, or need accurate financial projections to plan ahead. It gives you a clearer picture of your overall financial health, helps with long-term planning, and meets the reporting standards most lenders and institutional investors expect.
The tradeoff is that it doesn’t always show how much cash you have on hand at any given moment, and it can take more time, oversight, or the right property management accounting software. Still, accrual accounting offers the kind of accuracy and forward-looking insight that strategic investors value when aiming for growth and financial transparency.
Accrual vs. Cash Accounting: Key Differences at a Glance
| Aspect | Cash Accounting | Accrual Accounting |
| When Transactions Are Recorded | When money changes hands | When earned or incurred |
| Financial Accuracy | Simpler but less precise | More complete picture |
| Cash Flow Tracking | Real-time cash only | Includes receivables/payables |
| Best For | Smaller investors | Larger portfolios |
| Compliance | Often non-GAAP | GAAP compliant |
| Complexity | Easy to manage | Requires detailed tracking |
The secret is to match your commercial real estate accounting approach to your cash flow objectives and investment strategy. Both approaches can be successful.
How Accounting Method Impacts Cash Flow Statements
Your cash flow statement reflects how money moves in and out of your portfolio. But depending on your accounting method, that view can look very different:
- Under cash accounting, your statement mirrors your actual bank balance. It’s straightforward and useful for tracking immediate liquidity.
- Under accrual accounting, your statement may show income you haven’t collected yet and expenses you haven’t paid. This gives a more accurate picture of profitability, but it might overstate cash availability in the short term.
For instance, a property may appear profitable under accrual accounting since rent has been “earned” even though some tenants haven’t made their payments yet. However, since the funds haven’t reached your account, that same property may exhibit a shortfall when evaluated on a cash basis.
For this reason, many investors in commercial real estate keep an eye on both perspectives: accrual for operational choices and cash for financial health.
Choosing the Right Method for Your Portfolio
Consider the needs and uses of your portfolio in choosing between accrual and cash accounting:
- Size and complexity of your portfolio:
Large or multi-entity portfolios generally use accrual accounting to allow improved forecasting and reporting to lenders, while small investors generally use the cash method for ease and simplicity.
- Regulatory and tax requirements:
The IRS can require certain organizations or types of businesses to employ accrual accounting when their revenue passes certain thresholds. Check with your tax accountant to make sure in every case.
- Investor and lender expectations:
Institutional investors and lenders typically prefer financial statements on an accrual basis, since these provide more comparability and transparency.
- Software capabilities:
Contemporary real estate accounting systems, such as STRATAFOLIO, accommodate both accounting paradigms by tracking cash flow, receivables, and expenses for multiple entities in a single system.
How STRATAFOLIO Simplifies Real Estate Accounting and Cash Flow Management
Whether you use cash or accrual accounting, managing multiple entities, leases, and properties can quickly become complicated. That’s where STRATAFOLIO stands out.
STRATAFOLIO integrates seamlessly with QuickBooks Online and Desktop, giving commercial real estate investors real-time visibility into both cash and accrual metrics. You can:
- View portfolio-wide income and expense performance
- Automate intercompany transactions
- Track rent roll, lease expirations, and delinquencies
- Generate accurate cash flow statements under either accounting method
With STRATAFOLIO, you don’t have to choose between financial precision and operational clarity; you get both.
FAQs About Accrual vs. Cash Accounting in Real Estate
1. What’s the main difference between cash and accrual accounting?
When money moves, cash accounting records the transaction. Accrual accounting provides a more comprehensive view of financial performance by documenting them as they happen.
2. Which accounting method is better for commercial real estate?
Accrual accounting typically works better for larger portfolios because it provides more accurate real estate financial reporting and forecasting. Cash accounting may be the best choice for smaller investors who prefer simplicity.
3. Can I switch from cash to accrual accounting?
Yes, but it must be done carefully to align with IRS rules. Work with your tax accountant before making changes.
4. How does each method affect taxes?
Your accounting method determines when income and expenses are recognized for tax purposes. Accrual accounting may accelerate income recognition compared to cash accounting.
Conclusion
Managing cash and accrual accounting doesn’t have to be complicated. STRATAFOLIO gives you both perspectives, real-time cash insights, and reliable revenue tracking, all in one platform. With seamless QuickBooks integration for real estate and portfolio-wide visibility, you’ll always know where your finances stand.
See how STRATAFOLIO makes real estate accounting easier. Schedule a demo today.
