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 with 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 a great 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 HOA 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 obtained and bills are usually 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 financial obligations of the association may also be extrapolated out. The Revised Accounting Method is misleading for some reviewers, as wages are often inflated even though expenses are placed for finalization of payment. A large number of management businesses use the modified accounting way of their monthly accounts.

Accrual Accounting Method employs transactions as the primary way of monitoring the particular finances. In this method, income and expenditures are fully recorded at the time incurred no matter the cash position. Your receipts of incomes or payments associated with expenses are not a factor in this accounting method. The process shows the financial obligations and obligations with the association. A Cashflow Statement is usually given to define the current money movements of the business. The accounting method is usually the most complicated and for some, the most beneficial way of accounting. Financial Statements for banking loans, project critiques, and other official enterprise are required to be in the particular accrual based file format.

Use of a hybrid model, a normal supervision company preference, gives a snap shot involving both the cash along with the obligations/liabilities. We recommend that instead of the Cross Model that an Equilibrium Sheet, Profit along with Loss Statement be provided with to the Board. A fairly easy comparison of the cash financial statements will explain the particular “nuts and bolts” of the cashflow to the Board associated with Directors. The obligations/liabilities reviewed through the accrual centered financial statements will provide the Board the regularity of both the funds movement and the obligations/liabilities. This can allow the Board to find out the complete financial user profile of the financial wellness of the association.

Total, understanding the financial with the association is essential for the Board regarding Directors. Failure to maintain up the “bottom line” will affect the future health from the association, owners, as well as the property values.

If you would like more information or a discussion on professional management services, please visit Charles They would. Maness, Managing Broker or perhaps Kristen E. Richbourg, ESQ, Corporate Law firm at M Management LLC DBA M Brokerage Services website:
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