Dues Paid in Advance

I am curious how other HOA's treat dues paid in advance. Our management company is using the cash method of accounting, which adds prepaid dues into current income. Our Net Income for year ending 2005 looks $thousands larger than it really was, because come Jan 1, 2006 all but a very small portion of it became due.

KitM, we use cash basis accounting for every HOA we manage. This allows financials to be easily understood by anyone who is familiar with balancing a check book. Regarding your comment on 2005 EOY prepaids, they tend to be balanced by EOY 2004 or EOY 2006 prepaids depending on whether you are looking at 2005 or 2006 financials. The Accounts Receivable Report displays prepaid and delinquent accounts with a net receivables balance.

Cash accounting is better than accrual accounting because real income and expenses are portrayed rather than unreal anticipated numbers. No one has had a problem understanding our Balance Sheet, Income Statement, Accounts Receivable Report, and executive style Cash Flow/Budget Chart.

RogerB

P.S. I hate trying to figure out financials which use accural or modified accural accounting!

KitM, I would not put prepaids in the reserve fund; this could result in needing to violate an IRS rule. We put all payments into the operating fund - a checking account plus a money market account if prepaids are significant. Then in accordance with the annual operating and reserve budgets funds are transferred into a Reserve account.

RogerB