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Introduction and Agenda Methods of Accounting Financial Statements


Methods of Accounting Cash Accrual Modified Cash


Cash Accounting • • •

Revenue is booked when received Expenses are recorded when paid No accounts receivable or payable on balance sheet


Accrual Accounting • • •

Revenue is booked when earned Expenses are recorded when incurred Accounts receivable and payable on balance sheet


Modified Cash • • •

Revenue is booked when earned Expenses are recorded when paid Accounts receivable on balance sheet; no accounts payable


Important Considerations Accrual Method • Required by GAAP • Delinquencies •

• •

More accurate picture of receivables

Shows obligations not yet paid Community characteristics •

Size & complexity may dictate use of accrual method


Important Consideration Cash Method • Report any significant expense incurred but not yet paid • Carefully review monthly A/R report (30/60/90 day format) with the Board • Maintain lower management fees


Important Considerations Modified Cash Method • Submit and pay invoices on routine basis to materially portray expenses. • May have substantial delinquencies & want to maintain AR and prepaids on balance sheet.


Financial Statements •

Balance Sheet – – –

Income Statement – – –

• •

Assets Liabilities Equity & Fund Balances Revenue Expenses Net Income & Fund Balances

Statement of Cash Flows Financial Reports


Balance Sheet • • •

Assets Liabilities Fund balances (usually at the close of the last day of a month or a year)

ASSETS = LIABILITIES + FUND BALANCES


Balance Sheet


Balance Sheet


Assets Assets are the property controlled by the association: • Cash • Accounts Receivable • Prepaid Expenses • Fixed Asset • Receivable from Other Sources


Liabilities Liabilities are the obligations of the association: • • • • •

Insurance Payable Accounts Payable Accrued Expenses Prepaid Assessments Funds designated for long- range capital projects


Members Equity (Fund Balance) The cumulative earnings of the association from the date of inception. ASSETS = LIABILITIES + MEMBERS’ EQUITY


Income Statement Reports Revenues, Expenses and Net Income Also known as: • • •

Statement of Revenue and Expenses Operating Statement Profit and Loss Statement (P&L)

Information on a multi-column statement would include: • •

Current month – actual, budget and variance Year-to-Date – actual, budget and variance


Income Statement


Revenue Revenues: • Assessments (both billed and earned) • Late charges & interest • Laundry, parking and recreational services • Refunds from outside entities • Gain on sale of an asset; a litigation settlement


Expenses Expenses: Costs incurred, either paid or due and payable


Net Income (or Loss) •

The result of operations determined by Total Revenue less Total Expenses

•

This amount does not necessarily equate to cash


Income Statement Equation REVENUE - EXPENSE = NET INCOME or (LOSS)


Questions?


Financials Presentation - Kevin DeBolske