Financial Statements

The Association is required by law to maintain accounting records so that it can provide an Annual Report to the members and submit Federal and State income tax returns. But an even more important reason to maintain good financial records is that they will provide information that your Board needs to make good decisions. For example, if a water main break results in an unplanned $20,000 expense in February, the Board may decide to postpone discretionary spendings, such as tree pruning or a planned grounds improvement project.

The monthly financial statements are prepared on the modified cash basis, which means that assessment income is accrued (income appears in the month that it is due, not when it was actually collected) but expenses are treated on a cash basis (the expense appears in the month the check was actually written, which is not necessarily when the work was done). However, at the end of each fiscal year, the necessary adjustments are made to convert to a full accrual basis.

The Balance Sheet shows where the Association is at a particular point in time, such as the end of the month. Since your Association operates as a non-profit entity, it uses the fund approach, maintaining an Operating Fund and a Reserve Fund. The Operating Fund covers all of the routine expenses that occur every year, such as insurance, grounds care, pool expenses, etc. The Reserve Fund is used to segregate the funds which the Association sets aside to meet future Capital Expenditures. The basic accounting formula is that Assets – Liabilities = Fund Balance.

The Income/Expense Statement summarizes the activity which occurred during a period of time, typically from the first day to the last day of each month, and also shows the year-to-date income and expenses. Only Operating Fund activity appears on the Income/Expense Statement, with the exception of the monthly transfer to Reserves, which is deducted from available Operating income for that month.

Financial Statements are available on the homeowner portal.

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