Accrual

An accrual records revenue when it is earned and an expense when it is incurred, whatever the date cash changes hands. Accrual accounting gives a truer NOI for a period than cash accounting, because it matches each month's rent with that month's costs.

Property taxes show the difference. The default house owes $6,000 a year, often paid in two installments. On a cash basis, two months of the year carry a $3,000 hit and the rest carry nothing. On an accrual basis, each month shows $500, and monthly NOI stays level at about $2,408.

Most small landlords keep cash books, and that is fine for a tax return. When you build an NOI to value or compare properties, spread annual bills like taxes and insurance across the year so no single month looks unusually good or bad.