Simplifying the Accounting for Your Homeowners or Condo Association

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It is the time for some condominiums and HOA’s to do many of their budgets. For many people, budgets look like a mess of meaningless numbers. But, like it or not, the Board is responsible for understanding what those numbers mean so you can guide the financial course of the HOA.

Financial statements may be prepared according to three methods: Cash, Accrual, or modified. You must know and understand the method used to understand the financial statements. What method is used has a major impact on the numbers in the financial report. The methods differ as follows:

Cash. Cash accounting method is like a personal check that tracks when cash is received or paid out. Income is recorded when a deposit is made. Expenses are recorded when a check is written. States financial flows method is easy to understand and prepare. However, do not give the full picture because they omit information on unpaid bills or uncollected assessments.

Accrual. Accrual accounting tracks all transactions, even if money is received or paid. Revenues are recorded when the assessments are due instead of when charged. The same is true for expenditures. Expenses are recorded when incurred. For example, if the HOA purchase of new equipment, the purchase is registered, even if the project has not been paid. Because the tracks all income and expenses, accrual method accounting more accurately records the financial activity of a period of time.

Modified cash. Most HOAs use the modified cash method for record keeping. Methods is a mixture of cash and accrual. With this method, most transactions are recorded on the cash method, but some are recorded in an accrual basis. For example, accounts receivable (amounts owners owe the HOA) are recorded as they are billed (accrual method). Expenditure is recorded in the accounts are paid (cash method). Other regularization settings, such as prepaid expenses and tax provisions, not made. The modified cash method is less complex than the accrual method, but during an audit, a CPA often must convert the financial statements to accrual basis, as it more accurately groups income and expenses in the fiscal year applied.

There are two basic types of financial statements: the Balance Sheet and Statement of Income and Expenses. A balance sheet is sometimes called the Assets and Liabilities Declaration. The Board must receive both states – usually monthly, or at least every three months – soon after the end of the reporting period. Reviewing the financial report to the Board of the necessary corrections early.

Income and expenses. The purpose of this report is to keep abreast of state revenue and expenditure for a period of time. “Eight months ended August 31, 2003” for example, the income statement generally shows the current period – either the month or quarter – as well as the total year to date. At the end of each year (accounting) years, this statement “closes” and starts again with the start of new fiscal year.

An important feature of the statement of income and expenditure is the budget for the actual comparison that shows whether a special budget is over or under budget. If there is significant variation, it is easier to detect. The accounting method used, cash or accrual, impacts on the report. If you use the cash method, revenue is recorded when the assessments are paid and deposited. With the accrual method, revenues are recorded when it is “earned.” For this reason, a report of accumulation typically show a much larger income figure that a cash report unless all assessments have been paid on time. Same scenario for the payment of bills. With accrual accounting, the energy bill that applies to December but not received until January, is still reflected in the December report. Not so with a report cash method. These differences can greatly distort the financial position of the HOA, if the Board is not aware of them.

Balance Sheet. The balance sheet takes a “snapshot” of the financial status of the HOA at a certain date. It compiles assets, liabilities and equity.

Assets. These are the elements of the HOA owns. Financial flow statements generally list only effective method as an asset. A financial statement accrual method may show cash, to collect fees, prepayments and deposits (money held by the HOA, which will be returned).

Capital goods like furniture, vehicles, tools, equipment and depreciation may appear in an effective or financial statement accrual method. Capital goods can also be items that the HOA has the title and generate significant cash flow as a golf course or in the garage. However, the ownership of common areas is not included in the balance of the Homeowners Association.

Liabilities. These are the amounts owed by the HOA, whether products, services or taxes. Financial flow statements usually contain no obligations method. Liabilities may arise in a state of flow modified method, but only updated at the end of the year, and that expenditures are accrued monthly or quarterly.

Equity. This is also known as retained earnings, and generally states the current balance of reserve funds and operations. However, some accountants prefer to list reserves as a liability. The total assets must equal the sum of liabilities and equity. Thus, the term “balance” sheet.

Reserve is money budgeted for future repairs and replacements of common areas. Often it is the amount of cash from the Homeowners Association has reserved but can also be the amount the Homeowners Association projects that will have on your replacement by a certain date. The presentation of the amounts allocated to reserves is very variable. The HOA should consult an expert on HOA operations and financial statements must comply with CPA at year end to show the amounts budgeted for reserves, the reserves were spent, and any transfers between operating and  reserve.

When it comes to interpreting financial statements, the Board is responsible for the financial stability of the Homeowners Association. It is a fiduciary duty to understand them.

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What is the Difference Between a Common Element and a Limited Common Element?

Common elements or CE’s:
According to the Georgia Condominium Act, all property that is not part of a unit is part of the common elements. The common elements in a typical residential condominium are outside the buildings, such as gardens and recreational facilities. The CE ‘s are usually managed and operated by the condominium association. However, the unit owners, instead of the condo association usually own the common elements. The share of each item of property of the common elements described in the declaration of condominium.

Call Riverside Property Management

Riverside of Atlanta North
Community Management Specialists!

Limited common elements or LCE’s:
Limited common elements are a part of the common elements are allocated and reserved for the exclusive use of one or more units. Limited common elements often include items such as decks, patios, parking spaces, and air conditioning units that are physically outside the cube of space that comprises the condominium unit. LCE ‘s can not be reallocated by the association without the written consent of the owner of the unit. For example, if a parking space is assigned to a unit, it can not be reassigned or given to another unit without the consent of the owner of the unit. Limited common elements travel with the unit.

What is the Difference Between a Common Element and a Limited Common Element?

Common elements or CE’s:
According to the Georgia Condominium Act, all property that is not part of a unit is part of the common elements. The common elements in a typical residential condominium are outside the buildings, such as gardens and recreational facilities. The CE ‘s are usually managed and operated by the condominium association. However, the unit owners, instead of the condo association usually own the common elements. The share of each item of property of the common elements described in the declaration of condominium.

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Limited common elements or LCE’s:
Limited common elements are a part of the common elements are allocated and reserved for the exclusive use of one or more units. Limited common elements often include items such as decks, patios, parking spaces, and air conditioning units that are physically outside the cube of space that comprises the condominium unit. LCE ‘s can not be reallocated by the association without the written consent of the owner of the unit. For example, if a parking space is assigned to a unit, it can not be reassigned or given to another unit without the consent of the owner of the unit. Limited common elements travel with the unit.

The “Con” in the Condo Board

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It’s not all glam…

Owners of condominiums and co-op units have a lot of reasons to join their homeowners association board, especially if they want to participate in decisions that affect the monthly budget and the future value of their home. The caveat is that almost everyone who has participated in meetings of condominium association can share a horror story about the experience.

Lisa Robinson, an agent for Riverside Property Management, had a particularly unpleasant experience.

“A unit owner failed to pay a special assessment because not be notified in a timely manner about a construction problem,” said Lisa. “After that the unit owner sent dozens of emails  threatening to sue because I had sent him a delinquency letter explaining the amount owed the condo association. Fortunately, he sold his unit before it became a lawsuit. Several other delinquent owners have treated me like I was the bad guy when I confronted them about late assessments.  I was hired by the association, so I can imagine how it would be if I lived in the community. ”

Members of the condominium board often experience harassment from other owners who do not understand who are the volunteers, residents, employees paid by the association, etc.  And other owners just have not gotten over that experience of the college dorm and take issues into their own hands (Resident Advisers).

“I am happy to be a link between a resident in need and the management company, or to help a neighbor in an emergency, but people need to understand that members of the condominium board are volunteers from the community, not mothers in the home. ”

Phone calls about disputes between neighbors are the worst. Do not get caught up in personal conflicts.

Another common complaint among members of the condominium board  is that very few homeowners are willing to serve on the board or even attend an annual meeting. In a condominium building of 100 units , approximately only ten to fifteen owners are usually present at the annual , with only a handful who attend regular meetings.

In many neighborhoods, condominiums are filled with a mixture of elderly residents who have lived in the building for decades and owners that are young and single. This generation gap can create a conflict when it comes to changing the management model of a condominium or the introduction of a new procedure such as e-mail of the minutes from the last meeting.

Like the board meetings of the community, a problem with the building or the residents can make the monthly meeting short-hour debate, giving potential members a bad taste for what their future may hold if join the board.

Despite the problems outlined in this piece, becoming a board member of your condominium building has its benefits as well. You may simply want to do some research on the personality of the people living in your building before diving in.

As always, there are people that stand up and serve…and there are ALWAYS the ones that only have “lip-service”.  As a Community Manager, I have learned to take it all in stride and turn that conversation around.  The common goal is to increase the value of the property-BOTTOM LINE!

Written by: Lori Miles, CAM

Riverside Property Managment, Inc.

(678) 866-1436

www.riversidepropertymgt.com

Simplifying Accounting for Your Homeowners or Condo Association

 

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Fall is the time HOAs do many of their budgets. For many people, budgets look like a mess of meaningless numbers. But, like it or not, the Board is responsible for understanding what those numbers mean so you can guide the financial course of the HOA.

Financial statements may be prepared according to three methods: Cash, Accrual, or modified. You must know and understand the method used to understand the financial statements. What method is used has a major impact on the numbers in the financial report. The methods differ as follows:

Cash. Cash accounting method is like a personal check that tracks when cash is received or paid out. Income is recorded when a deposit is made. Expenses are recorded when a check is written. States financial flows method is easy to understand and prepare. However, do not give the full picture because they omit information on unpaid bills or uncollected assessments.

Accrual. Accrual accounting tracks all transactions, even if money is received or paid. Revenues are recorded when the assessments are due instead of when charged. The same is true for expenditures. Expenses are recorded when incurred. For example, if the HOA purchase of new equipment, the purchase is registered, even if the project has not been paid. Because the tracks all income and expenses, accrual method accounting more accurately records the financial activity of a period of time.

Modified cash. Most HOAs use the modified cash method for record keeping. Methods is a mixture of cash and accrual. With this method, most transactions are recorded on the cash method, but some are recorded in an accrual basis. For example, accounts receivable (amounts owners owe the HOA) are recorded as they are billed (accrual method). Expenditure is recorded in the accounts are paid (cash method). Other regularization settings, such as prepaid expenses and tax provisions, not made. The modified cash method is less complex than the accrual method, but during an audit, a CPA often must convert the financial statements to accrual basis, as it more accurately groups income and expenses in the fiscal year applied.

There are two basic types of financial statements: the Balance Sheet and Statement of Income and Expenses. A balance sheet is sometimes called the Assets and Liabilities Declaration. The Board must receive both states – usually monthly, or at least every three months – soon after the end of the reporting period. Reviewing the financial report to the Board of the necessary corrections early.

Income and expenses. The purpose of this report is to keep abreast of state revenue and expenditure for a period of time. “Eight months ended August 31, 2003” for example, the income statement generally shows the current period – either the month or quarter – as well as the total year to date. At the end of each year (accounting) years, this statement “closes” and starts again with the start of new fiscal year.

An important feature of the statement of income and expenditure is the budget for the actual comparison that shows whether a special budget is over or under budget. If there is significant variation, it is easier to detect. The accounting method used, cash or accrual, impacts on the report. If you use the cash method, revenue is recorded when the assessments are paid and deposited. With the accrual method, revenues are recorded when it is “earned.” For this reason, a report of accumulation typically show a much larger income figure that a cash report unless all assessments have been paid on time. Same scenario for the payment of bills. With accrual accounting, the energy bill that applies to December but not received until January, is still reflected in the December report. Not so with a report cash method. These differences can greatly distort the financial position of the HOA, if the Board is not aware of them.

Balance Sheet. The balance sheet takes a “snapshot” of the financial status of the HOA at a certain date. It compiles assets, liabilities and equity.

Assets. These are the elements of the HOA owns. Financial flow statements generally list only effective method as an asset. A financial statement accrual method may show cash, to collect fees, prepayments and deposits (money held by the HOA, which will be returned).

Capital goods like furniture, vehicles, tools, equipment and depreciation may appear in an effective or financial statement accrual method. Capital goods can also be items that the HOA has the title and generate significant cash flow as a golf course or in the garage. However, the ownership of common areas is not included in the balance of the Homeowners Association.

Liabilities. These are the amounts owed by the HOA, whether products, services or taxes. Financial flow statements usually contain no obligations method. Liabilities may arise in a state of flow modified method, but only updated at the end of the year, and that expenditures are accrued monthly or quarterly.

Equity. This is also known as retained earnings, and generally states the current balance of reserve funds and operations. However, some accountants prefer to list reserves as a liability. The total assets must equal the sum of liabilities and equity. Thus, the term “balance” sheet.

Reserve is money budgeted for future repairs and replacements of common areas. Often it is the amount of cash from the Homeowners Association has reserved but can also be the amount the Homeowners Association projects that will have on your replacement by a certain date. The presentation of the amounts allocated to reserves is very variable. The HOA should consult an expert on HOA operations and financial statements must comply with CPA at year end to show the amounts budgeted for reserves, the reserves were spent, and any transfers between operating and  reserve.

When it comes to interpreting financial statements, the Board is responsible for the financial stability of the Homeowners Association. It is a fiduciary duty to understand them.

 

Simplifying Accounting for Your HOA or Condominium Association

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Fall is the time HOAs do many of their budgets. For many people, budgets look like a mess of meaningless numbers. But, like it or not, the Board is responsible for understanding what those numbers mean so you can guide the financial course of the HOA.

Financial statements may be prepared according to three methods: Cash, Accrual, or modified. You must know and understand the method used to understand the financial statements. What method is used has a major impact on the numbers in the financial report. The methods differ as follows:

Cash. Cash accounting method is like a personal check that tracks when cash is received or paid out. Income is recorded when a deposit is made. Expenses are recorded when a check is written. States financial flows method is easy to understand and prepare. However, do not give the full picture because they omit information on unpaid bills or uncollected assessments.

Accrual. Accrual accounting tracks all transactions, even if money is received or paid. Revenues are recorded when the assessments are due instead of when charged. The same is true for expenditures. Expenses are recorded when incurred. For example, if the HOA purchase of new equipment, the purchase is registered, even if the project has not been paid. Because the tracks all income and expenses, accrual method accounting more accurately records the financial activity of a period of time.

Modified cash. Most HOAs use the modified cash method for record keeping. Methods is a mixture of cash and accrual. With this method, most transactions are recorded on the cash method, but some are recorded in an accrual basis. For example, accounts receivable (amounts owners owe the HOA) are recorded as they are billed (accrual method). Expenditure is recorded in the accounts are paid (cash method). Other regularization settings, such as prepaid expenses and tax provisions, not made. The modified cash method is less complex than the accrual method, but during an audit, a CPA often must convert the financial statements to accrual basis, as it more accurately groups income and expenses in the fiscal year applied.

There are two basic types of financial statements: the Balance Sheet and Statement of Income and Expenses. A balance sheet is sometimes called the Assets and Liabilities Declaration. The Board must receive both states – usually monthly, or at least every three months – soon after the end of the reporting period. Reviewing the financial report to the Board of the necessary corrections early.

Income and expenses. The purpose of this report is to keep abreast of state revenue and expenditure for a period of time. “Eight months ended August 31, 2003” for example, the income statement generally shows the current period – either the month or quarter – as well as the total year to date. At the end of each year (accounting) years, this statement “closes” and starts again with the start of new fiscal year.

An important feature of the statement of income and expenditure is the budget for the actual comparison that shows whether a special budget is over or under budget. If there is significant variation, it is easier to detect. The accounting method used, cash or accrual, impacts on the report. If you use the cash method, revenue is recorded when the assessments are paid and deposited. With the accrual method, revenues are recorded when it is “earned.” For this reason, a report of accumulation typically show a much larger income figure that a cash report unless all assessments have been paid on time. Same scenario for the payment of bills. With accrual accounting, the energy bill that applies to December but not received until January, is still reflected in the December report. Not so with a report cash method. These differences can greatly distort the financial position of the HOA, if the Board is not aware of them.

Balance Sheet. The balance sheet takes a “snapshot” of the financial status of the HOA at a certain date. It compiles assets, liabilities and equity.

Assets. These are the elements of the HOA owns. Financial flow statements generally list only effective method as an asset. A financial statement accrual method may show cash, to collect fees, prepayments and deposits (money held by the HOA, which will be returned).

Capital goods like furniture, vehicles, tools, equipment and depreciation may appear in an effective or financial statement accrual method. Capital goods can also be items that the HOA has the title and generate significant cash flow as a golf course or in the garage. However, the ownership of common areas is not included in the balance of the Homeowners Association.

Liabilities. These are the amounts owed by the HOA, whether products, services or taxes. Financial flow statements usually contain no obligations method. Liabilities may arise in a state of flow modified method, but only updated at the end of the year, and that expenditures are accrued monthly or quarterly.

Equity. This is also known as retained earnings, and generally states the current balance of reserve funds and operations. However, some accountants prefer to list reserves as a liability. The total assets must equal the sum of liabilities and equity. Thus, the term “balance” sheet.

Reserve is money budgeted for future repairs and replacements of common areas. Often it is the amount of cash from the Homeowners Association has reserved but can also be the amount the Homeowners Association projects that will have on your replacement by a certain date. The presentation of the amounts allocated to reserves is very variable. The HOA should consult an expert on HOA operations and financial statements must comply with CPA at year end to show the amounts budgeted for reserves, the reserves were spent, and any transfers between operating and  reserve.

When it comes to interpreting financial statements, the Board is responsible for the financial stability of the Homeowners Association. It is a fiduciary duty to understand them.

The Best Association Board Practives

How the Board of Directors (BOD) members  interact says a lot about the state of a condominium or homeowners association.

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Leadership is the ability to do things by encouraging and channeling the contributions of others, take a position on and address the issues, and acting as a catalyst for change and continuous improvement.

Yesterday’s leaders in for-profit businesses could demand performance.  Today we face a more educated workforce that is democratically oriented. In a volunteer organization, as a condominium or homeowners association BOD, problems and opportunities can be even more complex and challenging. As a result, today’s BoD must promote and implement the contributions of all members, both individually and in groups.

Here are some ways in which members of  the BoD can initiate effective and ineffective actions:

Ineffective teams: People shield those in power from unpleasant facts, fearful of penalties and criticism for shining light on the rough realities

Effective teams: People bring forth grim facts—”Come here and look — this is ugly”—to be discussed; leaders never criticize those who bring forth harsh realities

Ineffective teams: People assert strong opinions without providing data, evidence, or a solid argument

Effective teams: People bring data, evidence, logic, and solid arguments to the discussion

Ineffective teams: The BoD president has a very low questions-to-statements ratio, avoiding critical input and/or allowing sloppy reasoning and unsupported opinions

Effective teams: The BoD president employs a Socratic style, using a high questions-to-statements ratio, challenging people, and pushing for penetrating insights

Ineffective teams: Team members acquiesce to a decision but don’t unify to make the decision successful—or worse, undermine it after the fact

Effective teams: Board members unify behind a decision once made, and then work to make the decision succeed, even if they vigorously disagreed with it

Ineffective teams: Team members seek as much credit as possible for themselves, yet do not enjoy the confidence and admiration of their peers

Effective teams: Each Board member credits other people for success, yet enjoys the confidence and admiration of his or her peers

Ineffective teams: Team members argue to look smart or to further their own interests rather than argue to find the best answers to support the overall cause

Effective teams: Team members argue and debate, not to improve their personal position but to find the best answers to support the overall cause

Ineffective teams: The team conducts “autopsies with blame,” seeking culprits rather than wisdom

Effective teams: The team conducts “autopsies without blame,” mining wisdom from painful experiences

Ineffective teams: Team members often fail to deliver exceptional results and blame other people or outside factors for setbacks, mistakes, and failures

Effective teams: Each team member delivers exceptional results, yet in the event of a setback each accepts full responsibility and learns from mistakes