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PART IV

ACCOUNTING SYSTEMS FOR OWNERS

AND ARCHITECTS

CHAPTER XXIV

THE OWNER'S ACCOUNTING SYSTEM

Subject Matter

This chapter will cover the procedure in an investor's office from the time he contemplates the erection of a building to the time leases are signed and tenants occupy the spaces rented. A building has been selected as a type because of the many points its promotion and construction involve. The accounting records and the ledger sheets will be briefly explained.

Purchase of Property

An investor purchases a piece of property. Credit is given to Cash or other consideration given in payment of the purchase price and a charge is made to Land and to Buildings for the proportion of the purchase price applicable to each. “Real Estate" as a title for an account for improved property bought as an investment is not advocated. Land is not subject to depreciation but the buildings are. If the property is purchased subject to a mortgage, the amount of the mortgage is credited to Mortgages Payable. The transactions are expressed in journal-entry form as follows:

Land..
Building..

$100,000

100,000

To Cash.

$200,000

when purchased for cash, and when bought subject to a mort

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If mortgage is an existing mortgage and not one newly placed, the interest is adjusted to date of taking title.

After purchasing the property, the investor may decide to remove old structure and erect a new building. He has in mind the type and size of the new building and consults an architect to have him prepare some preliminary sketches and ascertain approximately what its construction will cost. It may require a greater outlay of cash than he has available. He may have to arrange for financing its construction. He must also analyze the cost of carrying the investment and compare it with the probable income to be derived.

Financing the Building

The determination of whether the investment will prove profitable should be made after considering the cost of the investment, the method of financing, the income from the property, and the carrying charges.

The items entering into the cost of the investment are: 1. Cost of land (or rent thereof during construction if leased).

2. Sums to be paid to contractors for the erection of building. 3. The architect's fee.

4. Interest and taxes during construction.

5. Additional sums to be paid for changes in layouts required by lessees or ordinances.

6. Any other current charges during construction.

7. Furnishings or equipment not included in (2) and (5).

The investor should have a reasonable cash surplus after providing for above items to take care of unforeseen expenditures he may be called upon to make.

A statement should then be prepared to show the sources from which the investor will obtain funds to pay for the "investment." This would include his available cash, the proceeds

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