the management trust "financials 101" ebook

OREGON | WASHINGTON | CALIFORNIA | NEVADA | ARIZONA

Community Management Financials 101

Compliments of: The Management Trust

www.managementtrust.com

In This eBook

•Information on the two methods of accounting, and the differences between the two.

•Examples of the five (plus 1) Basic Financial Statement “Reports.”

•Examples of monthly Financial Statement Summaries.

Accrual Basis•Income recorded when earned, and expenses recorded when incurred.

• Transactions are immediately recorded into an Accounts Receivable or Accounts Payable account until cash is paid out.

•Effective at monitoring cash flow week-over-week.

•Boards can easily ensure they have enough cash on hand for upcoming expenses.

Methods of Accounting

Cash Basis•Most basic method of accounting, can more aptly be described as “checkbook accounting.”

•Records income on the same month that it received, and records expenses when it is paid out.

•Effective for tracking cash flow, not designed when matching revenue and money that has been set aside to cover expenses.

• Every community association management company uses one of these methods, or a combination of both.

• Tailored accounting software for boards usually allows for either method to be employed.

What method is your management company using?

• The Management Trust uses cash/accrual basis, as determined by state law.

– California / Nevada / Washington: Must be on accrual or modified accrual basis of accounting

– Arizona / Oregon: No required method

• For all other states, check with your community association manager on the specific method used, or consult your state’s treasury/general accounting offices.

• For some items, it is not as important to be strictly on an accrual basis.

– Example: Prepaid Insurance – When you pay for your insurance, if your board pays $12,000 today for next 12 months, on a accrual basis – that gets recorded into an asset account, and is then allocated that over each month.

•Balance Sheet

•Income Statement Year-to-Date (YTD)

•Budget Comparison Standard

•Accounts Receivable Delinquency

•Accounts Payable Aging Detail

•General Ledger Detail

The Five (plus one) Basic Financial Statement “Monthly Reports”

Balance Sheet

Represents both the operating fund and the reserve fund.

Represents the balances as of one day in time.

Shows the Assets, Liabilities, and Equity.

Income Statement YTD

Income reported at top.

Expenses reported at bottom.

Represents current month summary and YTD summary.

Net income represented on bottom of sheet.

Budget Comparison

Compares the budgeted amount to the actual amount.

For the income section a positive variance means more funds were collected than budgeted.

For the expense section a positive variance means more funds were spent than budgeted.

Aging Delinquency

•Delineates the homeowners that owe the Association funds.

•Breaks the amounts owed down based on a standard 30/60/90 schedule.

•Categorizes the collection status.

•Delineates the amounts the Association owes to vendors.

•Breaks the amounts owed down based on a standard 30/60/90 schedule.

•The total AP is listed at the bottom of the report in the center.

AP Aging Detail

General Ledger Detail

• Nuts and bolts of all transactions that happened throughout the month.

• Individual transactions for the month.

• How those affected different income and expense items.

Community Association Fund Activity Summary Reports

•Income and Expense Statement Summary

•Accounts Overview

•Reserve Fund Summary

Shows prior year funds.

Shows net income for the year to date.

Any accounts with a variance month over month are acknowledged with reason.

Operating Summary: Income and Expense Statement Summary

Operating Summary: Accounts Overview

Status of homeowners who have not paid their dues.

Shows total accounts receivable balance, Including the amount that is over 90 days past due.

Total accounts payable balance, including amount that is more than 90 days past due.

Reserve Fund Summary

•Creates an income statement for your reserve funds.

•Shows status of board funds at start to year compared to YTD.

•What you have vs. What you’re supposed to have.

•Ensures you are allocating money appropriately each month.

What to Remember• Accrual Basis is preferred method of accounting for

community association boards, but state laws may dicate the method your board uses.

• The Management Trust uses a hybrid of accrual and cash basis.

• The Five (plus 1) Major Basic Financial Statement Reports gives your board a comprehensive look the current and future budget.

• Summary activity reports are great to share financial information with entire homeowners association.

The Management Trust is a leading national community association management firm that specializes in serving condo associations and

homeowner associations across the United States.

With a combined 150 years of property management experience, we are committed to providing the very best customer service to the community

associations that work with us. For additional information on our services, visit the Financial Management section at ManagementTrust.com.

The Management Trust15661 Red Hill Avenue, Suite 201

Tustin, California 92780

OREGON | WASHINGTON | CALIFORNIA | NEVADA | ARIZONA