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 – Assets – Liabilities – Equity & Fund Balances

• Income Statement – 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: Costs incurred, either paid or due and payable

Expenses

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?