Commercial property management accounting is residential accounting plus four postings that have no residential equivalent, and each one exists because a commercial lease promises things over a term rather than month by month. Getting them wrong does not usually produce a wrong bank balance; it produces income recognised in the wrong period, which is the kind of error that survives until somebody reads the accounts properly.
Incentives spread across the term
A rent-free period or a stepped rent means the cash received differs from the rent earned in any given month. Under accrual accounting the total consideration is generally recognised evenly across the term, so a rent-free quarter still produces income and a later step does not produce a spike. The difference sits on the balance sheet as accrued or deferred rent, and it is the posting most often missed by a bookkeeper coming from residential.
Service charge on account is not income
Money billed on account for service charges is collected against costs you will incur and reconcile. Treating it as income when billed overstates the result and then understates it when the balancing credit goes out. Hold it as a liability until the reconciliation, and the year-end statement becomes a straightforward comparison rather than an exercise in explaining last year's figures.
Tenant improvement allowances are capital, mostly
A contribution to a tenant's fit-out is generally capitalised and amortised rather than expensed on payment, and the treatment differs depending on who owns the improvement at the end. This affects both the accounts and the tax position, and it is worth agreeing the treatment when the deal is done rather than when the invoice arrives.
Arrears in commercial are a covenant question too
A commercial arrear is often the first visible sign of a tenant's difficulty, and it interacts with guarantees, deposits and any rent deposit deed. The ledger should show not just the balance but what security stands behind it, so a decision about forbearance is made with the position visible rather than from the age of the debt alone.
Questions people ask about commercial property management accounting
Should commercial property accounts be accrual based?
Effectively yes. Cash accounting cannot represent incentives spread over a term or service charge held on account, which are ordinary features of a commercial let.
When is service charge recognised?
On reconciliation against actual cost, not when billed on account. Until then it is money held against costs to come.
Who should do commercial property bookkeeping?
Somebody who has done it before. The four postings above are not intuitive and the errors are period errors, which are the hardest to spot late.