Accrual Basis to Acre Foot

 

Accrual Basis

In contrast to the cash basis approach, the accrual basis determines a business’ balance sheet by recording expenses and revenue as soon as they are formally incurred — even though no funds have been paid out or received.

For example, it will take into account bills that you don’t plan to pay until later in the year. But it also takes into accounts payable that you haven’t yet collected (and may never ever collect).The accrual basis can provide a more accurate long-term overview of a business’ financial health.

Real estate investors can use either methods and, sometimes, even both approaches depending on the type of investment property. On the one hand, the accrual basis approach may be a more conservative view because it counts debts even if they’re not paid or payable.  On the other hand, because it counts income not yet received, it may prove to be too rosy a picture.

 

Accrued (Closing) Expenses

Accrued expenses are those seller-paid closing costs that have been accumulated but not yet paid by the seller.

Real estate taxes are a prime example, because they are often billed and paid in arrears, so the 2005 tax bill may be for real estate taxes incurred in 2004. At a purchase closing, the parties won’t have a bill from the county or taxing authority confirming what the seller owes — but both parties know that the seller does owe accrued taxes on the property. They or their attorneys will then estimate the amount of real estate taxes owed by prorating the unpaid days based on the previous bill.

 

Accrued Depreciation

See Accumulated Depreciation

 

Accumulated Depreciation

Accrued or accumulated depreciation is the total amount of depreciation that a property owner has claimed on his or her investment property. When the property is sold, the accrued depreciation deductions must be reclaimed. Taxes must then be paid on that accrued depreciation. However, the tax savings you get from being able to deduct depreciation today from your income can be much greater than the costs of paying the taxes on the accrued depreciation when you sell the property.

Owners of investment real estate must claim depreciation deductions on their annual tax returns for their investment property. The IRS will hit you with taxes on the “recaptured” accumulated depreciation when you sell your property—even if you didn’t claim the depreciation deductions while you owned it. So if you own investment property, you should always claim your depreciation deductions.

 

Accrued Interest

Accrued interest can have two different meanings, depending on the context.  With a savings account or similar bond investment, accrued interest is the interest income that your money has accrued over time.

In the mortgage arena, accrued interest refers to a loan’s interest charges that the borrower owes to the lender. With an interest-only loan, for example, the minimum monthly payments due each month are the interest that has accrued on the current principal balance.  Or if you fall behind on your mortgage loan, the unpaid interest will also accrue and will come due.

Some mortgage loans, however, have monthly payments that don’t come close to paying the interest accrued during the month. Option ARMs or “pick a payment” loans are the most common types of these negative amortization loans. The minimum monthly payments on these programs aren’t enough to pay the interest due. But don’t make the mistake of thinking that you won’t have to pay them! These unpaid interest charges accrue and are then added to the loan principal. These are generally awful programs because your principal balance goes up instead of down—causing negative amortization.

 

Acidic Soil

Soil that contains a lower level of mineral salts. More specifically, alkaline soil has a pH level greater than 7.0.  Soil that has a pH level lower than 7.0 is considered acidic. It’s usually easier to make soil more alkaline than to make it more acidic. An easy way is to add hydrated lime to acidic soil.

 

Acknowledgment

With deeds, the acknowledgment is a witnessing declaration verifying the validity of the grantor’s signature. The acknowledgement is the signer’s written confirmation that they are signing the document voluntarily and without coercion.

 

Acoustical Tile

A finishing tile used for walls, ceilings and sometimes even floors, which are made of sound-absorbing material. They are also often designed with crevices, indents and unfinished texture, so as to increase their ability to absorb sound.

 

Acquisition & Development Financing

A&D loans are used primarily for development projects and to provide funds to cover the purchase of the land or prospective property. This includes funding for the subdivision and basic preparation of the project.

However, construction financing is usually not part of the acquisition and development (A&D) loan. Rather the construction loan, if any, will pay off the A&D loan and then provide additional funds for major improvements.

 

Acquisition Cost

The charges and expenses related to a real estate purchase, over and above the property’s price. These expenses will include title insurance, credit checks, property appraisals and legal fees. These expenses are usually called the “closing” or “settlement” costs.

 

Acre

The traditional measurement of land size consisting of 43,560 square feet or 4,840 square yards. Farm land, unimproved land and residential properties are often indicated in acres.

 

Acre Foot

A measurement that indicates the volume needed to cover an acre of land with water to a depth of 12 inches. Water used for irrigation, for example, is often measured by the acre foot.