Everyone’s familiarity and understanding of accounting is different. Accounting practices can vary as well, even among the experts, which leaves something to be learned by all. In time and with continued exposure, you will find a better understanding of your Association’s Financial Statements.
Accounting is accounting. While some may find it informative and a valuable business tool, others find it difficult and foreign. For the latter, the following explanations are intended to open the doors to the Financial Reports provided by Accell Property Management and help you better understand the numbers which describe your Association’s business affairs.
Balance Sheet
The Balance Sheet reports the Association’s cash position (Assets) at a specific point in time (last day of each month). The cash shown on the Balance Sheet is offset by Equity and Liability accounts. This balancing of Assets, Equity and Liabilities is summarized in the Basic Accounting Equation:
Assets = Equity + Liabilities.
For practical purposes, the Balance Sheet is best used to determine how much money the Association has in the bank. Bank accounts are shown in two categories: Current Assets and Investment Accounts.
Current Assets represent the bank accounts used in the day-to-day business transactions of the Association. Typically, Current Asset accounts are represented by the Association’s Checking Account and a Money Market Account. These accounts are sometimes referred to as “Operating” accounts since they are intended to fund the day-to-day operation of your Association.
Another current Asset is represented by Accounts Receivable. This account represents the net amount of money owed to the Association from homeowner assessments. In addition to delinquent payments, the account balance reflects prepaid assessment amounts (funds received from homeowners who are paying their assessment in advance; yes, some people actually do this).
Liabilities and Equity make up the lower half of the Balance Sheet. When we talk about these accounts, we get a little deeper into accounting pomposity. For the average Board Member, the only useful parts of these sections are the Capital and Non-Capital Reserve Accounts which reflect the amount of money the Association is “Reserving” or setting aside for the future maintenance, repair and replacement of designated elements for which the Association is responsible. However, Accell provides other subsidiary or supporting reports that provide the same information and you may find more useful.
Supplemental Schedule of Allocation Control Totals
This is an embarrassing long name for a report that only shows the difference between the amount of money the Association actually has placed in bank accounts and the amount you have allocated for the Reserve and Fund accounts. The significance of all this is, generally, you would like to have an equal amount of real money in the bank to cover the amount of Allocations you have made.
Reserve & Fund Allocation Report
This report provides a detailed picture of the activity related to the Association’s Reserve & Fund Accounts. On the report, you will find the balances at the start of the year and current month. From here, the report reflects the amount of change that has occurred in these accounts. Every month more money is allocated to these accounts per the Association’s budget and occasionally expenditures occur due to replacement and maintenance needs.
Monthly and Year to Date Statement of Income & Expense
This is one of the staple reports in accounting. This report reflects the amount of Income the Association earned and the amount of operating expenditures (non-reserve accounts) which have taken place for the month and year, respectively. To assist board members in their analysis of the Association’s financial activities, a comparison is made to the budgeted amount for each account. When making this comparison, it is important to keep in mind that your budget is only an estimate of future financial activity, so while actual figures are expected to come close, they are not expected to match budget figures exactly. The bottom line of this report (Net Income or Loss) tells you whether you are ahead of the game or behind. Net Income occurs when Total Income is greater than Total Expenses plus Allocations made to Reserve Accounts. A Net Loss occurs when this situation is reversed. Net Income is better.
Check Register and Other Registers
The Check Register provided with your monthly financial statements lists all checks written during the current accounting month. Similar registers are provided for other accounts (i.e., Money Market Accounts) which also have check writing activity.
Accounts Receivable Aging Report
This report lists all the people who are the least likely to be seen at a Board Meeting. The report is set up so that the highest delinquent homeowner is shown at the top, so s/he can get the attention s/he deserves, and lists all other rearrages outstanding at the end of the month. This report is similar to the Balance Sheet in the sense that it is a “Snap Shot” of delinquencies on a given day. Each day, the picture changes as payments are received. Every Association has delinquencies, so the fact that yours does is not cause for alarm. The key to keeping them under control is to take diligent and consistent steps in the enforcement of your collection policy.
Bank Statements and Reconciliations
In addition to the financial reports prepared by Accell Property Management, each month you will receive copies of bank statements for the bank accounts in which your Association has placed funds. These statements are important because they provide confirmation, from the bank or other institutions, of the balances shown in Accell’s reporting. Accell reconciles these accounts to assist you in your comparison and to safeguard against accounting or banking errors.
Conclusion
The best way to learn and understand accounting and financial reporting is to ask questions. If you would like to know more and better understand the reports Accell is providing you each month, we encourage you to ask questions at the board meeting or call us in advance of the meeting so you can be better prepared. Some questions may have to be researched to determine the specific information related to a particular transaction. Please be patient with us if research is needed. We promise we will provide an answer.
Accounting is accounting. While some may find it informative and a valuable business tool, others find it difficult and foreign. For the latter, the following explanations are intended to open the doors to the Financial Reports provided by Accell Property Management and help you better understand the numbers which describe your Association’s business affairs.
Balance Sheet
The Balance Sheet reports the Association’s cash position (Assets) at a specific point in time (last day of each month). The cash shown on the Balance Sheet is offset by Equity and Liability accounts. This balancing of Assets, Equity and Liabilities is summarized in the Basic Accounting Equation:
Assets = Equity + Liabilities.
For practical purposes, the Balance Sheet is best used to determine how much money the Association has in the bank. Bank accounts are shown in two categories: Current Assets and Investment Accounts.
Current Assets represent the bank accounts used in the day-to-day business transactions of the Association. Typically, Current Asset accounts are represented by the Association’s Checking Account and a Money Market Account. These accounts are sometimes referred to as “Operating” accounts since they are intended to fund the day-to-day operation of your Association.
Another current Asset is represented by Accounts Receivable. This account represents the net amount of money owed to the Association from homeowner assessments. In addition to delinquent payments, the account balance reflects prepaid assessment amounts (funds received from homeowners who are paying their assessment in advance; yes, some people actually do this).
Liabilities and Equity make up the lower half of the Balance Sheet. When we talk about these accounts, we get a little deeper into accounting pomposity. For the average Board Member, the only useful parts of these sections are the Capital and Non-Capital Reserve Accounts which reflect the amount of money the Association is “Reserving” or setting aside for the future maintenance, repair and replacement of designated elements for which the Association is responsible. However, Accell provides other subsidiary or supporting reports that provide the same information and you may find more useful.
Supplemental Schedule of Allocation Control Totals
This is an embarrassing long name for a report that only shows the difference between the amount of money the Association actually has placed in bank accounts and the amount you have allocated for the Reserve and Fund accounts. The significance of all this is, generally, you would like to have an equal amount of real money in the bank to cover the amount of Allocations you have made.
Reserve & Fund Allocation Report
This report provides a detailed picture of the activity related to the Association’s Reserve & Fund Accounts. On the report, you will find the balances at the start of the year and current month. From here, the report reflects the amount of change that has occurred in these accounts. Every month more money is allocated to these accounts per the Association’s budget and occasionally expenditures occur due to replacement and maintenance needs.
Monthly and Year to Date Statement of Income & Expense
This is one of the staple reports in accounting. This report reflects the amount of Income the Association earned and the amount of operating expenditures (non-reserve accounts) which have taken place for the month and year, respectively. To assist board members in their analysis of the Association’s financial activities, a comparison is made to the budgeted amount for each account. When making this comparison, it is important to keep in mind that your budget is only an estimate of future financial activity, so while actual figures are expected to come close, they are not expected to match budget figures exactly. The bottom line of this report (Net Income or Loss) tells you whether you are ahead of the game or behind. Net Income occurs when Total Income is greater than Total Expenses plus Allocations made to Reserve Accounts. A Net Loss occurs when this situation is reversed. Net Income is better.
Check Register and Other Registers
The Check Register provided with your monthly financial statements lists all checks written during the current accounting month. Similar registers are provided for other accounts (i.e., Money Market Accounts) which also have check writing activity.
Accounts Receivable Aging Report
This report lists all the people who are the least likely to be seen at a Board Meeting. The report is set up so that the highest delinquent homeowner is shown at the top, so s/he can get the attention s/he deserves, and lists all other rearrages outstanding at the end of the month. This report is similar to the Balance Sheet in the sense that it is a “Snap Shot” of delinquencies on a given day. Each day, the picture changes as payments are received. Every Association has delinquencies, so the fact that yours does is not cause for alarm. The key to keeping them under control is to take diligent and consistent steps in the enforcement of your collection policy.
Bank Statements and Reconciliations
In addition to the financial reports prepared by Accell Property Management, each month you will receive copies of bank statements for the bank accounts in which your Association has placed funds. These statements are important because they provide confirmation, from the bank or other institutions, of the balances shown in Accell’s reporting. Accell reconciles these accounts to assist you in your comparison and to safeguard against accounting or banking errors.
Conclusion
The best way to learn and understand accounting and financial reporting is to ask questions. If you would like to know more and better understand the reports Accell is providing you each month, we encourage you to ask questions at the board meeting or call us in advance of the meeting so you can be better prepared. Some questions may have to be researched to determine the specific information related to a particular transaction. Please be patient with us if research is needed. We promise we will provide an answer.