How can Renting or Buying an Office Space Affect your Balance Sheet?


Before we start discussing about the effects that purchasing an office space has on the balance sheet, it is important to understand what the balance sheet and the accounting equation is and its importance for a business.

The accounting equation, which is the most significant equation in the universe of accounting, is quite simple:

Assets – Liabilities + Shareholder’s Equity

Assets are the things or objects that a company owns which have an economic value. These are generally things which the company can use to gain money. Assets are considered a resource for the business.

Liabilities are claims on the assets that are given upon by people other than the owner of the business. These are the debts that the owner owes to his suppliers from whom he has taken the assets. These suppliers have a claim on their cash.

Renting or buying space office space

When the liabilities have been paid, the thing that is left by is the shareholders’ equity. This is what the owner can call his own or claim to in his business. If the business if solely made by one person, then the equity goes to the owner. If the business is incorporated, then it goes to the shareholders in terms of shares.

The assets are what the company can use which include things like cash, inventory, relievable accounts, etc.

All of the three elements ultimately go on to the balance sheet made by the company. This shows the financial position in terms of business.

The liabilities are taxes and such things. The shareholder’s equity is both the money that the owners put in the business in the start and any gains or losses that have happened in the business since.

How is office space accounted for? Do you consider it as expenses or assets? If you happen to buy an office area, then it can be used for a long period of time, hence when it exceeds its accounting period, it can be counted as an asset.

On the other hand, if you rent an office area, you are likely to keep paying for it for a long time till it expires its expiry date. It involves a risk of liability from the suppliers if you aren’t able to pay off the debt.

There is a matter of how you use the office area that you have purchased. If you paid the money on cash, it is likely that it will be used for more than the accounting period. This reduces your cash asset and the office purchase account increases in the current assets. There is a balance in the accounting sheet and the purchase is recorded in the cash accounts.

On the other hand, if you buy the office with credit, and if it is a large amount, which an office space generally is, and you are likely to use it for more than one accounting period, then your liabilities increase as well as your current assets. As a result, there is a balance in your accounting equation. A purchase of supplies on the account is recorded in the liabilities and supplies accounts. In both the ways the assets will stay the same because the decrease in one asset matches with the increase of another.

More UK Student Property Investment Needed

mortgageAs increasing numbers of the newest, luxury loving, premium demanding generation are going off to university, the demand for high-quality student accommodation in the UK is at an all-time high.

No longer will students settle with the sub-par, damp conditions that students have had to endure for years before.

The National Union of Students (NUS) has recently conducted a survey on university students regarding their opinions of their current or past experience with student accommodation. On average, it was found that out of every 10 UK students, 4 of these would deem their privately rented accommodation as “substandard”, reporting a plethora of issues. Out of all students surveyed, 42% of these reported frequent problems with damp and insulation, whilst another 16% admitted living in houses with numerous electrical issues.

In additional to these direct issues that the students are faced with in their day-to-day living, a whopping 37% of students surveyed by the NUS stated that they have never been provided with the correct paperwork to ensure that their deposits were being held safely by the correct agency, despite this being a legal requirement for all tenants in the UK.

Student property standards increase

It is not news to anyone that there have always been numerous issues found with old-fashioned student accommodation, rented out to students by largely amateur landlords.

This type of accommodation has, for many years, been the only option for students in their second and third years of university, having to accept what they can afford in an area close to campus. However, this is now changing, and its changing quickly.

A growing number of students

Statistics released by UCAS highlights the ever-increasing number of students attending university. Proportionately, there was a 0.3% increase in applications for university in 2018, with this figure anticipated to be higher in 2019.

With a substantial 8% rise in rest of the world applicants (up to a record high of 65,440 for 2018), the need for accommodation is set to keep growing.

Interestingly, and unlike the rest of the UK housing market, the economy had little bearing on the number of students attending university. CIPD highlight this, whereby as an economy falls in an area, with less job opportunities available, the number of university applicants actually rises. With Brexit itself appearing to play little part in the demand by rest of world applicants and a falling economy, we may see the number of university applicants rocket.

An investment opportunity

With a 68% rise in demand in the last 8 years for purpose-built, modern, student accommodation, there is great potential for investors in the UK student property market to achieve high long-term returns – there are ample student accommodation investment opportunities available to investors.

Net asset value in student property was up 7.2% across 2018, according to property experts DIGS. This figure is a result of the ever-increasing number of applicants going to university, and an increase in rental price for private student accommodation.