The five ways expenses go missing at month end, what it costs when they do, and what a good process looks like, from someone who spent years booking them by hand.
Accruals in commercial real estate are the month-end journal entries that record property expenses in the month the work happened, when the vendor's invoice hasn't arrived or hasn't cleared approval by close. They matter because every property closes its own P&L, which rolls up into a fund, a REIT, or a higher-level entity, and a missed accrual moves net operating income, tenant CAM charges, and lender reporting for that month. For the accountant, the hard part isn't the journal entry; it's working out which of several hundred vendors across the portfolio should have billed, hasn't, and for how much.
Every real estate accountant knows the accrual drill. Last business day of the month, you sit down with the general ledger and a spreadsheet and you go hunting for the bills that haven't shown up yet. The landscaper. The alarm monitoring company. The second half of the electric bill. Email the asset manager to ask whether any material projects happened that you didn't know about. You estimate each one, book a reversing journal entry, and hope you didn't miss anything.
Most people assume this is a solved problem. There's an ERP. There's a close checklist. Surely something tells you what to accrue.
Turns out, nothing did, not for any of the teams we talked to. In the fifteen interviews we ran in 2026 with real estate accounting teams and advisors, across senior living, multifamily, office, industrial, hospitality, data centers, and net-lease, every one of them described finding missing invoices the same way: a person reads the ledger line by line and remembers which vendors are usually late. One VP of Finance put it better than I can: he'd done every month-end efficiency training out there, they all say your systems should tell you what to book, and he had yet to find that button anywhere.
Here's the kind of thing that slips through. A night porter service does the work in August. The invoice is dated late September. It posts in October. A little over $200,000, two full months between the work and the books. If nobody accrued it, August looked $200,000 better than it was, and whoever read that August owner statement made decisions on a number that wasn't true.
I spent a good chunk of my career doing this by hand. At Colony we had 12,000 entities and something like 500,000 invoices a year, and every month end, quarter end, and year end came with an accrual exercise. I like unglamorous problems that are underappreciated, and this is one of the best. It isn't high-profile. Nobody gets promoted for a clean accrual schedule. It isn't that nobody cares. The accountants care a great deal; it's that the problem sits below the level the big systems are built to see, so it gets handled with a spreadsheet and a good memory. But it's tenacious, it repeats forever, and it quietly decides whether the numbers your owners, lenders, tenants, and auditors see are right.
So let's take it apart properly: what an accrual is, the five places expenses go missing, why real estate makes it harder than other industries, what it costs when it goes wrong, and what a good process actually looks like.
An accrual is a journal entry that records an expense in the month the work happened, even though the vendor's invoice hasn't arrived or hasn't been approved yet. It's often an estimate, and for a missing invoice it's commonly booked as a reversing entry: posted on the last day of the period, backed out on the first day of the next, so the real invoice replaces it instead of stacking on top of it. Under generally accepted accounting principles (GAAP), accrual-basis entities have to do this, so that expenses incurred in one accounting period don't leak into the next and the financial statements for each period stand on their own. In real estate, that has to be done at the property or ownership-entity level across the whole portfolio, which is why the work multiplies.
The revenue side has its own accruals, accounts receivable and deferred rental income, but that's a different exercise with different owners. This piece is about the expense side, the accrued expenses, because that is where the month-end close actually gets stuck.
The mechanics are simple on paper. Say your January lawn maintenance bill usually lands mid-February. On January 31 you book a reversing entry: debit landscaping expense $2,000, credit accrued liabilities $2,000. On February 1, Yardi reverses it automatically if the flag is set. The real invoice for $1,980 posts in February and nets against the reversal. January carries $2,000, February carries $-20, and the year is right.
That's the part that works. The part that doesn't is everything upstream of the entry: figuring out which of the several hundred vendors across your properties should have billed you, hasn't, and for how much.
Accrual accounting recognizes revenue and expenses in the accounting period they were earned or incurred. Cash-basis accounting recognizes them when money moves through the bank account. Under the cash method, you can make any month look profitable by paying nothing that month; under the accrual method, the revenue and the cost of earning it land in the same period, which is the whole point.
Two different rulebooks decide which method you're on, and it's worth keeping them apart. Financial reporting under GAAP is accrual-based, so any entity that issues GAAP financial statements to investors, lenders, or auditors accrues; that covers public REITs, most funds, and most institutionally owned portfolios. Federal tax accounting is a separate question with its own rules, laid out in IRS Publication 538: C corporations and partnerships with a C corporation partner generally can't use the cash method for tax once average gross receipts over the prior three years exceed $32 million (for tax years beginning in 2026, indexed annually), tax shelters can't use it at any size, and many other entities can choose. A family office that owns everything outright, reports to nobody outside, and clears the tax tests can run cash basis and track cash flow, and nobody is harmed. An operator that issues GAAP statements to investors or lenders doesn't have that option, and for them the accounting method isn't a choice.
The practical consequence for real estate: every accrued expense you book puts a liability on the balance sheet at period end, relieved when the entry reverses or the real invoice is recorded, depending on how your firm runs it. Get the accruals wrong and both the income statement and the balance sheet are wrong, for every property, every month.
There are five separate accrual problems hiding under one name, and each one needs a different fix. Three of them are places an expense can be sitting unrecorded; one is spend you committed to but can't confirm; one is a control problem that only shows up the following month. Most teams handle the first well, the second and third partly, and the last two barely at all. If you only remember one thing from this piece, remember that they are not one problem.
1. Received, but not approved. The invoice is in the building. It's sitting in PayScan or in somebody's approval queue. Until it clears the last step of workflow, it doesn't hit the trial balance. This is the easy bucket. A custom report or a workflow dashboard shows you what's in transit for the period, and you accrue it at the real amount because you have the real invoice. If your team misses these, that's a process problem, not a detection problem.
2. Committed or planned, but unconfirmed. Spend you approved or budgeted for that may or may not have happened yet. A PO tells you a contract was approved, not that the work was done. A budget tells you what you expected to spend this month, at the grain of property and GL account, with no vendor attached. Both are signals worth checking against the ledger. Neither, on its own, tells you a bill is actually missing, and the same landscaping contract can sit in this bucket and the next one at once. Plenty of firms don't use POs at all, so you can't build a process that depends on them.
3. Recurring, and not received. The utility bill, the parking contract, the elevator maintenance, the alarm monitoring. You get these every month, or every quarter, or twice a year, and this period they haven't shown up. Catching them requires knowing history: what this property normally buys, from whom, how often, for about how much. The work scales with portfolio size, not with the number of accountants. Most accountants carry this in their heads or in a spreadsheet. It works until the accountant leaves. It also fails quietly when the budget is broad. Maintenance came in near budget, so nobody noticed the alarm company didn't bill, because a different repair happened to fill the hole.
4. One-off and non-recurring. The roof patch, the legal bill, the snow removal in a bad week, the emergency plumber. Nothing in history predicts these. Accounting has no visibility, so somebody sends an email or a spreadsheet to every property manager and asset manager asking what happened this month that hasn't been billed. Then you chase who hasn't replied. On one real single-property worksheet I've looked at, about a third of the dollars were items no pattern could have found. That third is not a failure of the process. It's the part that will always need a human at the site.
5. Last period's accruals. This is the most underappreciated bucket and the most difficult. Say you booked 60 accruals in March. April rolls, they reverse, invoices arrive. Did 48 of the 60 come in? Or 63, because some belonged to February? What about the missing 12: did the service not happen, is the vendor just slow, did you stop using them? Each answer needs a different corrective action, including re-accruing the ones that are still valid and are still owed. And some of what showed up in April was really from two or three periods ago. Keeping period-over-period continuity straight, rather than staring only at the current month, is where most accrual processes lose their discipline.
There's a sixth thing hiding inside all five: granularity. Do you post one $1.5 million entry per entity, or line by line with the vendor and a note? An aggregate posting is fine if a vendor-and-property schedule sits behind it; without that schedule it's nearly useless the next month. Line by line in the ledger is the most transparent and takes forever. Every team picks a middle, and the middle is where bucket five gets hard.
|
Problem |
What tells you |
What to do |
|---|---|---|
|
1. Received, not approved |
The workflow queue and in-transit report |
Accrue at the real amount |
|
2. Committed, unconfirmed |
Open POs, budget vs. actual by property and account |
Confirm completion, then accrue or clear |
|
3. Recurring, not received |
Vendor history per property: cadence, last bill, usual amount |
Accrue the estimate, or the uncovered remainder |
|
4. One-off, unbilled |
Only the site team knows |
Ask them for that short list, and nothing else |
|
5. Last period's accruals |
The prior month's schedule, line by line |
Confirm arrival and reversal; re-accrue what's still open; retire what stopped |
A complete accrual process covers all five. Solving recurring detection alone, which is where most of the attention goes, doesn't get you completeness; it gets you bucket three.
One distinction inside bucket five deserves its own sentence, because the two failure modes are opposites. A missed accrual understates the month: the expense isn't there. A missed reversal overstates the next one: the estimate and the real invoice both land. The first is what everyone scans for. The second is quieter and, in my experience, caught later.
Accruals are harder in real estate for three reasons: entities, context, and the sheer variety of activity at a property. A software company has one P&L and one controller. A real estate operator with 300 properties closes 300 assets, each with its own P&L, and rolls them up into a REIT, a fund, or a higher-level entity, across a few thousand recurring vendor relationships and, behind each building, a stack of legal entities that all need the same expense landed correctly. Add operating spend, capital projects, and costs pushed down from corporate arriving in the same month, and the accrual list stops being one list.
Entities and context. A building is rarely one entity. There's the owning entity, often a joint venture or fund above it, a management company beside it, and sometimes a lender package that wants its own view of the same expense. At Colony we had 12,000 entities, and the invoice would say "Colony Capital, maintenance, $50,000" when what it meant was fifty buildings at $1,000 each for lawn care, plus a $10,000 flood cleanup at one of them, plus an irrigation project that gets capitalized. The paper doesn't say that. Someone knows it. Get the entity wrong and you've potentially moved net operating income (NOI) between owners. The same vendor often bills across several business lines, so the default coding fails, and the accrual inherits the mistake.
Three kinds of spend at once. A property generates operating expenses, capital projects, and corporate push-downs, and each needs accruing on different evidence. Operating expenses follow vendor history. Capital projects follow a contract, a draw schedule, and a project manager who doesn't think of himself as an input to the close. Push-downs, like management fees and insurance or shared-service allocations, follow a formula that changes when the portfolio changes. One month's list mixes all three, and the person who knows about each one sits in a different department.
Cadence is not monthly. Fire safety inspections are quarterly. Insurance is semi-annual. Property taxes follow the county's calendar. Snow removal bills November through February and then nothing, and that gap is a rule, not a miss. A team that scans for "what didn't bill this month" will miss the quarterly items until variance analysis catches them a period late. Nobody remembers to accrue the thing that shows up twice a year.
Partial periods. An invoice arrives covering the first fifteen days of the month. The on-site team is rushing, nobody checks the service-date range, and the other fifteen days never get accrued. This isn't a missing invoice. It's coverage arithmetic inside a single period, and it's invisible to a scan that only asks whether a bill arrived.
Utilities usually run a period behind. Multiple meters per property, rate changes, consumption that lags the bill by weeks. When you don't have the service period in hand, the practical way to accrue a metered utility is to take the last bill, divide by the days it covered, and multiply by the days in this month. I've watched accountants do that arithmetic by hand, and I've watched them do it off a bill that was thirteen months old because nobody noticed the reference had gone stale. When a utility middleman sits in between, you see a payment, not the electricity bill behind it, which makes the estimate worse.
Vendors quietly stop. Contracts get re-bid. The lawn still gets mowed, but by someone else, so the old vendor's history says a bill is missing when it isn't. Or a service ends and nobody tells accounting, and the accrual keeps getting booked for months on a stream that died. In the portfolios I've looked at, vendors that quietly stopped were the biggest source of accruals that should never have been booked at all.
The site-team loop. Accountants build the list, then send a per-property workbook to property managers, GMs, or asset managers for a sanity check. Universally wanted, universally clunky. The property manager won't log into another system, holds the only knowledge of the one-off work, and is the last person with time at month end. At larger firms this loop is a company-wide "search for unrecorded liabilities" email to fifty people. If nobody replies, it isn't caught.
Cascading closes. There is one set of books, but it closes in stages. Properties close first, monthly, each with its own P&L. Those roll up into corporate, which closes monthly or quarterly. Above that, fund accounting runs a post-period look-back on whatever cadence its reporting requires, quarterly for vehicles that report quarterly and annually for many others, sweeping for liabilities that belonged in a period that already closed. An expense that slips the property close gets a second look months later, by different people, in a consolidation it was never coded for. None of the teams we interviewed had a tool that tells them what's missing at any of those levels; they have a spreadsheet and a memory.
When accruals go wrong, the damage shows up outside the accounting department: in owner statements, tenant CAM estimates, lender covenant math, and audit findings. The books being slightly off is the least of it. Every one of those parties is making a decision on financial data that a missed accrual quietly changed. Here are three public examples, because this is usually treated as an internal nuisance and it isn't.
A REIT restates and reports a material weakness. In November 2022, New York City REIT told the SEC it had failed to accrue third-party expenses, mostly around a contested proxy fight. Operating expenses and accrued liabilities were understated by $1.7 million for the second quarter and $2.3 million for the first half of 2022. Management identified a material weakness: no effective control for identifying expenses from non-typical events, including new vendors and new services from existing vendors. Read that last clause again. That's bucket four, the one-offs, in a public filing.
The nation's largest residential landlord catches $86 million after the fact. In its 2016 audit, the New York City Housing Authority's auditors sampled invoices and found work performed in 2016 that was paid in 2017. Management went back through the rest and revised the financial statements: operating expenses up $16.3 million, capital expenditures of $69.3 million moved into the right year, accrued liabilities up $86 million. Nine instances of goods and services received before December 31 with no accrual. The remediation they committed to was a process to review invoices posted after year-end. That is the entire discipline, in one sentence, arrived at the hard way.
One missed entry, one significant deficiency. The Delaware State Housing Authority's fiscal 2020 audit turned up a $630,000 adjusting journal entry that should have been made during year-end close and wasn't. Auditors reported it as a significant deficiency. One entry.
These are the cases that made it into a filing or an audit report. The everyday version never does. It looks like a $10,000 vendor miss that drops three months of expense into one month, a property manager whose bonus moved because NOI moved, or a CAM pool that overbilled tenants because a common-area expense landed in the wrong year.
The close cycle time is real too. In Ledge's 2025 survey of 100 finance professionals, 18% closed in one to three business days, 32% in four to five, 23% in six to seven, and 27% took more than seven. APQC's Open Standards Benchmarking puts the median at 6.0 calendar days from running the initial trial balance to completing consolidated monthly statements, across more than 10,000 companies. And in LiveFlow's 2026 survey of 43 senior finance leaders at companies between $1 million and $250 million in revenue, nearly eight in ten blamed close delays on waiting for data from other systems or departments, and only 16% closed in under three days (as reported by CFO Dive). In real estate, a good part of that waiting is the site-team loop from the last section.
And one procedure from the auditor's side of the table: a standard test of whether your payables are complete is the search for unrecorded liabilities. The auditor reviews the cash disbursements and invoices that came in after period end and checks whether each belonged in the prior period (Universal CPA Review). They run that test once a year. Your accountants are trying to pass it every month, by hand, before the invoices exist.
For a handful of bills, booking the accrual is the wrong goal. Property tax, insurance premiums, registration fees, and mortgage payments have deadlines and penalties. Accruing them keeps the ledger honest and shows what is owed; it does nothing to stop the late fee on an unpaid bill, the lapsed coverage, or the covenant default.
The accrual process and the critical-payment process usually live in the same spreadsheet, and that's the problem. An accrual asks, "did this bill come in, and if not, what do I book?" A critical payment asks, "is this going to get paid before the deadline, and who's on it?" The first question gets answered on the last day of the month. The second needs to be answered a week or two before, while there's still time to do something.
A good accrual process has a short list of these items with due dates and an owner, and it raises them before the deadline, not at close. Treat them as a separate bucket from the recurring vendor detection. They're small in count and enormous in consequence.
A good accrual process applies the auditor's completeness question at every monthly close instead of once a year, keeps a record of what each property normally buys, and treats last month's accruals as this month's first question. Here's what that looks like in practice, in the order I'd fix things.
Start with what you can see. Pull everything received but unapproved for the period and accrue it at the real amount. This is the cheapest, most accurate accrual you'll book all month, and a surprising number of teams skip it because the invoice "isn't in the system yet." It's in the building. That counts.
Track the pattern. For every property, the list of recurring costs: the service, the usual vendor, how often it bills, when it last billed, what it usually costs. Today this lives in a senior accountant's head. Get it into something that survives them leaving. Slice it finely enough that a $27,000 parking contract shows up as missing even when $33,000 of other contract services posted to the same GL account that month. If you only look at the account total, it looks full, and you say nothing.
Use the best current evidence, not a blind average. A contract that bills the exact same number every month is a standing charge; use it to the penny. A price that stepped up in November should be estimated from the bills after November, not the whole year. Seasonal items get the same month last year. Metered utilities get the daily-rate arithmetic, from a bill that isn't stale. Budget-based estimates are the last resort, because the budget has no vendor in it.
Accrue the remainder, not all-or-nothing. If you expected $30,000 for a service and $12,000 arrived, book $18,000. If more arrived than expected, book nothing and move on. The missing-expense estimate floors at zero; a real over-accrual from a prior month is a correction, handled on its own, not a negative line on this list.
Set a threshold, and know why. Some controllers waive anything under $1,000 or $5,000 at the property level. Some expect a missing $20 invoice on the list. Reporting cadence is one input: a vehicle that reports quarterly usually has a shorter window and less tolerance for slippage than one that reports annually. There is no textbook answer; there is only your policy, written down, so two accountants apply it the same way.
Keep the schedule granular, whatever you post. The accrual schedule is the control; the journal entry is just its output. Whether you post one entry per vendor and property or one aggregate entry per entity is a policy choice, and an aggregate entry is perfectly auditable if a line-level schedule sits behind it with the vendor, the property, the account, the basis for the estimate, and, next month, what happened to it. What isn't auditable is an aggregate number with nothing behind it. Build the schedule so it rolls forward; then post however your ledger and your controller prefer.
Then, next month, reconcile every line, and escalate the long-standing ones. Did the bill come in? Did the accrual reverse? If nothing came in and the service is still live, re-accrue and say so. If the service stopped, kill the pattern so it stops generating rows. If you can't tell whether last month's entry reversed, that's a question for the accountant, not an assumption for the system. Double-counting can be harder to spot than a miss, because nothing looks missing. And an accrual that has rolled three months without a bill isn't an accounting question anymore; it goes to the asset manager or the vendor, with a date on it.
Make the site-team loop small. Send property managers a short list of the things only they know, the one-offs, and nothing else. Don't ask them to review the whole worksheet. They won't, and you'll wait three days to find out.
Keep the critical payments on their own list, with due dates, ahead of close.
None of this needs new software. It needs history, discipline, and a place to keep both, built into the accounting process rather than bolted on at the end. The catch is that the history most teams need is sitting in the invoices themselves, and it's rarely kept in a form you can query by property, vendor, and cadence.
Many of them, yes. The recurring buckets can be detected from invoice history: what each property buys, from whom, on what cadence, for how much, and whether anything has arrived for it this period, either in the AP system or still in workflow. What can't be detected from history is the one-off work only the site knows about, and a good system says so plainly instead of leaving a silent hole.
The ingredients are all data that already exists. Posted invoice history carries a vendor, a property, a GL account, and a date, and sometimes a service period in the notes. Enough of that, kept per property, can reveal cadence, a price step, a partial-period bill, and a stream that quietly died. Add the invoices that are in the building but not yet posted, and you have the operating equivalent of the auditor's search for unrecorded liabilities, run at close instead of months after it.
I'll be direct about the limits. A system like this will over-suggest on services that stopped, until it learns they stopped. It can't see spend that never passed through it. It doesn't replace the reconciliation of last month's accruals against what actually reversed in the ledger; that step still has to happen. And it will never find the emergency plumber. The right posture is a suggested list with the reasoning shown, a human deciding each line, and the controller's existing review and posting controls left exactly where they are. If someone tells you their system books accruals with no human in the loop, ask them how they handle bucket five.
Part of the reason I'm writing this, as you can see, is that we love to take deep dives into problems, and this is a problem we're working on at PredictAP. If you have accruals in your life and opinions about how this should work, I'd like to hear them. And I am confident all of you accountants out there will love what we have come up with!
An account payable is a liability for an invoice you've received and entered. An accrual is a liability for work performed or goods received where the invoice hasn't arrived or hasn't been processed by close. Payables credit Accounts Payable; accruals credit Accrued Liabilities and are usually estimated and reversed the next period.
Cash basis recognizes revenue when it's received and expenses when they're paid. Accrual basis recognizes revenue when it's earned and expenses when they're incurred, whichever period the cash moves in. GAAP financial statements are accrual basis; the IRS permits either method for tax, subject to entity type and a gross receipts test. Real estate operators with outside investors or lenders are on accrual basis.
A reversing journal entry is an accrual booked on the last day of a period that automatically backs itself out on the first day of the next. When the real invoice posts, it nets against the reversal, so the expense is counted once, in the month the work happened. Yardi does this with a flag on the entry.
Use the most recent price for that vendor at that property, not a long-run average. Fixed contracts use the contract amount exactly. Stepped prices use only the bills after the change. Seasonal costs use the same month last year. Metered utilities use the last bill's daily rate times the days in the period.
The schedule should be per property and per vendor; the posting can be either. A single aggregate entry is fine when a line-level schedule supports it and can be rolled forward next month. An aggregate entry with no schedule behind it can't be reconciled, because you can't tell which invoices arrived against it.
It is the audit procedure for testing whether payables are complete. The auditor pulls cash disbursements and invoices received after period end and checks whether each belonged in the period being audited. A monthly accrual process pursues the same completeness objective, before those subsequent invoices exist for anyone to review.
A dollar floor below which a missing item isn't booked. Practice varies widely: some controllers set $1,000 or $5,000 at the property level, some large owners with few property-level expenses work with floors in the tens of thousands, and some teams expect every missing invoice on the list regardless of size. The threshold should be written policy, not individual judgment.
Because most accrual scans ask what didn't bill this month. Fire safety, insurance, and property taxes bill on their own cycles, so they don't look missing in a monthly scan and only surface when variance analysis catches them a period late. Cadence has to be tracked per vendor.
Typical accrued expenses at a property are the recurring services that bill after the work: utilities, landscaping, janitorial, security, elevator and fire-safety maintenance, parking and valet contracts, pest control, and management fees. Add any one-off repair or legal work that finished before the invoice arrived. Property taxes and insurance are a different animal: paid in advance, they're prepaid assets amortized to expense over the period they cover; paid in arrears, they're accrued. Which one depends on billing and payment timing, not on how often you expense them.
In Ledge's 2025 survey of 100 finance professionals, only 18% closed in three business days or fewer and half took more than five; APQC's median is 6.0 calendar days from trial balance to consolidated statements. Accruals sit between the AP cutoff and the locked trial balance, and Ledge's respondents ranked accruals and provisions the second most time-consuming close activity, behind reconciliations, with 56% naming dependency on other departments as a blocker. The teams that close fastest don't accrue less; they identify what's missing earlier, from history, rather than from a ledger scan on the last day.
Partly. Yardi Voyager and MRI both support reversing and recurring journal entries, and add-ons exist that accrue invoices already sitting in approval workflow. What neither does natively is the identification step: telling you which recurring vendor hasn't billed this period, estimating the amount from history, and tracking last month's accruals through to the invoice. That work still happens in spreadsheets, which is why accrual automation for real estate is mostly still a spreadsheet. It's the gap PredictAP, an AI invoice coding platform for real estate accounts payable, is working on: predicting which invoices are missing before close, using the invoice history it already processes for firms on Yardi and for MRI shops running AP through NexusPayables.
No. Cash-basis entities recognize expenses when paid, so there is nothing to accrue. That is workable for an owner with no outside reporting obligations who clears the federal tax tests. Any entity issuing GAAP financial statements to investors, lenders, or auditors is on accrual basis, and larger C corporations and partnerships with a C corporation partner generally can't use the cash method for tax either.