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OREGON | WASHINGTON | CALIFORNIA | NEVADA | ARIZONA

Community Management Financials 101

Compliments of: The Management Trust www.managementtrust.com


In This eBook •Information on the two methods of accounting, and the differences between the two. •Examples of the five (plus 1) Basic Financial Statement “Reports.” •Examples of monthly Financial Statement Summaries.


Methods of Accounting Cash Basis •Most basic method of accounting, can more aptly be described as “checkbook accounting.” •Records income on the same month that it received, and records expenses when it is paid out. •Effective for tracking cash flow, not designed when matching revenue and money that has been set aside to cover expenses.

Accrual Basis •Income recorded when earned, and expenses recorded when incurred. • Transactions are immediately recorded into an Accounts Receivable or Accounts Payable account until cash is paid out. •Effective at monitoring cash flow weekover-week. •Boards can easily ensure they have enough cash on hand for upcoming expenses.

• Every community association management company uses one of these methods, or a combination of both. • Tailored accounting software for boards usually allows for either method to be employed.


What method is your management company using? •

The Management Trust uses cash/accrual basis, as determined by state law. – –

California / Nevada / Washington: Must be on accrual or modified accrual basis of accounting Arizona / Oregon: No required method

For all other states, check with your community association manager on the specific method used, or consult your state’s treasury/general accounting offices.

For some items, it is not as important to be strictly on an accrual basis. –

Example: Prepaid Insurance – When you pay for your insurance, if your board pays $12,000 today for next 12 months, on a accrual basis – that gets recorded into an asset account, and is then allocated that over each month.


The Five (plus one) Basic Financial Statement “Monthly Reports” •Balance Sheet •Income Statement Year-to-Date (YTD) •Budget Comparison Standard •Accounts Receivable Delinquency •Accounts Payable Aging Detail •General Ledger Detail


Balance Sheet Shows the Assets, Liabilities, and Equity. Represents both the operating fund and the reserve fund. Represents the balances as of one day in time.


Income Statement YTD Represents current month summary and YTD summary.

Income reported at top. Expenses reported at bottom.

Net income represented on bottom of sheet.


Budget Comparison Compares the budgeted amount to the actual amount. For the income section a positive variance means more funds were collected than budgeted. For the expense section a positive variance means more funds were spent than budgeted.


Aging Delinquency •Delineates the homeowners that owe the Association funds. •Breaks the amounts owed down based on a standard 30/60/90 schedule. •Categorizes the collection status.


AP Aging Detail •Delineates the amounts the Association owes to vendors. •Breaks the amounts owed down based on a standard 30/60/90 schedule. •The total AP is listed at the bottom of the report in the center.


General Ledger Detail •

Nuts and bolts of all transactions that happened throughout the month.

Individual transactions for the month.

How those affected different income and expense items.


Community Association Fund Activity Summary Reports

•Income and Expense Statement Summary •Accounts Overview •Reserve Fund Summary


Operating Summary: Income and Expense Statement Summary

Shows prior year funds.

Shows net income for the year to date.

Any accounts with a variance month over month are acknowledged with reason.


Operating Summary: Accounts Overview

Status of homeowners who have not paid their dues.

Shows total accounts receivable balance, Including the amount that is over 90 days past due.

Total accounts payable balance, including amount that is more than 90 days past due.


Reserve Fund Summary •Creates an income statement for your reserve funds. •Shows status of board funds at start to year compared to YTD. •What you have vs. What you’re supposed to have. •Ensures you are allocating money appropriately each month.


What to Remember • Accrual Basis is preferred method of accounting for community association boards, but state laws may dicate the method your board uses. • The Management Trust uses a hybrid of accrual and cash basis. • The Five (plus 1) Major Basic Financial Statement Reports gives your board a comprehensive look the current and future budget. • Summary activity reports are great to share financial information with entire homeowners association.


OREGON | WASHINGTON | CALIFORNIA | NEVADA | ARIZONA

The Management Trust is a leading national community association management firm that specializes in serving condo associations and homeowner associations across the United States. With a combined 150 years of property management experience, we are committed to providing the very best customer service to the community associations that work with us. For additional information on our services, visit the Financial Management section at ManagementTrust.com. The Management Trust 15661 Red Hill Avenue, Suite 201 Tustin, California 92780

TMT's Financials 101 Ebook  

The "Financials 101" ebook covers topics discussed in the webinar including: * Methods of Accounting * State Rules and Regulations...

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