Where does cash RE purchase go on a P&L?

Question

I am putting together a P&L for an application for finance reasons. I work for myself, and for that reason and also as a landlord in addition to federal tax returns I am required to file a P&L statement. They asked for the last three months. Five months ago I received a one-time windfall of money I used to buy a cheap piece of RE for cash two months ago. Windfall was $60,000. Cash purchase was almost as much. Is the purchase an expenditure that goes on the P&L as an expense?

Simon W. · Answer

@Diane Perry I think you should have an accountant to review your books or the very least to have a bookkeeper. There are plenty of us here in BP community that can help.

Bill B. · Answer

If you need a P&L for last 3 months and this happened 5 months ago, obviously it  don’t go anywhere on the P&L. Plus, A “P”rofit “&” “L”oss statement doesn’t include assets, only income and expenses.

If I have 1 million in the banks and It pays me $1,200/yr in interest. I live at home and don’t pay for anything but pizza and beer, and I spend $90/mo on pizza and beer my P&L is..

$300 interest income

-$270 pizza and beer

$30 net income.

If I spent more I could have a negative P&L with a million in the bank, with $10 million in the banks.

I have $100 million in gold and I spend $20,000 to live for 3 months

My P&L is…

Income 0

Expense

Rent $5,000

Food $5,000

Entertainment $5,000

Misc $5,000

Net income minus $20,000.

You can spend yourself to “needy” no matter your income. Just gamble, donate, spend on whatever. But I assume there are income limits on assistance. They probably only care about incime.

Diane Perry · Answer

Thank you, @Bill Brandt!

Greg Scott · Answer

No. Transforming one asset into another is not an expense, it is a balance sheet change.

If a company buys stock in another company, they exchange cash for stock.  Both are assets and appear on the balance sheet in different areas.  Theoretically you can sell that stock later and convert it back to cash.  Nothing hits the P&L statement, so not an expense.

If instead the company spent that money on a party, that is an expense.  You can't sell the party that happened last year for cash next year.

Basit Siddiqi · Answer

@Diane PerryThe P&L will include items such as income(rent, late fees, pet fees, etc) and your expenses will be items such as insurance, real estate taxes, repairs, mortgage interest, etcThe purchase of the property is normally listed as an asset.

Bill B. · Answer

You could have the “expenses” you paid to buy the property. Appraisal, transfer tax, etc etc. But not the actual purchase price.

Unless you overpaid for “goodwill” or something like that, it’s still not an income or an expense. (Imagine buying The last property you need to own the block for $100,000 when it’s only worth $80,000. You spent $20,000. (Unless your combined properties are now worth $50k more.  Then you actually made $30k by overpaying $20k)

If you have $10,000 in cash and then buy exactly $10k in gold you have no income or expense. If it costs you 10% and you only get $9,000 in gold, you have a $1,000 expense. If you turn $10k in us cash in to gold, one month, and then in to crypto the next month and then in to British pounds the next month. You have no income or expense unless they charged a fee or the value rose or fell.

As I mentioned before. They usually only care about income because you spend yourself to poor.

Diane Perry · Answer

Bill, just to clarify, as I said, the cash came in five months ago, but the purchase happened within the three month period.

Expenses to live are not asked, (ie pizza, rent, etc.) only business expenses against the business income. So is the purchase of the rental an expense in this case is my question, since other expenses arising from the rental, taxes, insurance, etc. are deducted from business income.

Diane Perry · Answer

The windfall was personal - a stock dividend - and not from being a landlord, so it was not an asset to me as a landlord initially. And this, as I said is for a P & L statement where I need to show that I qualify for financial help by having income below a certain amount. Since I received the dividend prior to the period they are asking for, I don’t know what to do with the purchase. Forgive me if I am not understanding… this is new to me.

If I buy a property I hope to rent out, how do I account for it on my P&L?

Simon W. · Answer

Balance sheet item. debit Asset credit Equity

Greg O'Brien · Answer

@Diane Perry balance sheet, not P&L

Where does cash RE purchase go on a P&L?

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