Archive for May, 2012

Analyzing the financial health of an owners association may not be so clear cut, especially if the accounting is done on a cash basis.  The reason for this is that there may be some assets and liabilities not listed on the P&L and Balance Sheet.  These items include Accounts Payable and Accounts Receivables, and the amounts can be significant. 

Under cash basis accounting, an expense or receivable is not recorded until cash changes hands.  The only place you will see these items is on the AP and AR report which won’t hit the General Ledger and financials until paid or received. 

So how does the association operate when there is a significant cash shortfall? Through special assessments, budgeting a contingency line item, having a budget that’s already padded for this situation or even borrowing from Reserves.   The latter should be used as a last resort and I will address this issue on a different post.

Although cash basis accounting does not paint an accurate picture of the financial standing of an owners association, it should be supplemented with additional disclosures and reports.