By Charles H Maness
There are several schools of thought on what approach to accounting is the best for condominium and homeowner associations. Just before deciding on the accounting method, the particular association should look on the makeup of the finances. Asking important questions upfront on whether or not the association is to staff an accountant/certified public accountancy firm (CPA), management company or even perform the book mp3s on their own is always an incredible starting place. Considerations that will financial statements for FHA home loan approvals, Fannie Mae Project Submissions, loans from banks, and a host associated with other needs have to be in the Accrual Method of Accounting.
Management companies do not always use an accountant or CPA. Questions have to be explored when choosing the particular management company on what rules are in place to assure that the Atlanta accounting is actually compliant with governmental regulations. All accounting data files must comply with US General Accepted Accounting Practices to ensure the financial statements that need considering valid.
Accounting method options involved the following selections
Cash Method, essentially, is when association earnings are recorded when received and bills tend to be recorded when paid out. As the simplest approach to accounting, the Cash Method doesn’t consider liabilities or obligations of the association. Most tax returns are usually completed on the Income Accounting Method.
Modified Accounting Method (also known as a cross accounting method, modified income or modified accumulation methods) is a mix of the cash and the accrual accounting methods. The revenue and expenses tend to be recorded at the time obtained or paid and the obligations and obligations of the association can also be extrapolated out. The Modified Accounting Method is misleading to many reviewers, as income is often inflated while expenses are held for finalization of repayment. A large number of management organizations use the modified accounting way for their monthly reports.
Accrual Accounting Method uses transactions as the main way of monitoring your finances. In this technique, income and bills are fully documented at the time incurred regardless of cash position. The receipts of earnings or payments regarding expenses are not an issue in this accounting method. The strategy shows the obligations and obligations in the association. An Earnings Statement is usually made available to define the current funds movements of the firm. The accounting method is the most complicated and for some, the most beneficial technique of accounting. Financial Statements for financial loans, project testimonials, and other official organization are required to be in your accrual based file format.
Use of a hybrid model, a normal operations company preference, provides a snap shot of both the cash along with the obligations/liabilities. We recommend that instead of the A mix of both Model that a Balance Sheet, Profit along with Loss Statement receive to the Board. A simple comparison of the money financial statements will explain your “nuts and bolts” of the earnings to the Board regarding Directors. The obligations/liabilities examined through the accrual primarily based financial statements will provide the actual Board the uniformity of both the income movement and the obligations/liabilities. This may allow the Board to view the complete financial account of the financial well being of the association.
Overall, understanding the financial in the association is very important for the Board involving Directors. Failure to keep up the “bottom line” will impact the future health with the association, owners, along with the property values.
If you’d like more information or an assessment on professional administration services, please visit Charles L. Maness, Managing Broker or perhaps Kristen E. Richbourg, ESQ, Corporate Attorney at M Administration LLC DBA M Brokerage Providers website: http://www.mbrokerageservices.com
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