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KitM (Georgia)
Posts: 2
Posted:
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.
LisaS (Illinois)
Posts: 341
Posted:
We are only 300 single family homes, and last year collected approximately 98% of dues (the rest required property lien). So we create our budget based on approximation of dues we will collect plus reserve buffer.

We use cash method of accounting as well, but keep our running financial statement online for wasy reference. Our 2005 end of year statements show the income received for 2006 Dues (but paid in 2005) as such. This way we can differentiate our actual residual reserves from budgeted income.

I don't know if this helps or not!
Lisa

RogerB (Colorado)
Posts: 5,067
Posted:
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 (Georgia)
Posts: 2
Posted:
Thanks for replying. The problem we have with counting dues paid in advance as current income, is that this income is added to our "capital reserve." We do all of our big projects out of this reserve. At the end of 2005, it appears we have an extra $thousands in this account available for spending. But Jan.1 2006, this extra money became due and "evaporated." Any suggestions?
RogerB (Colorado)
Posts: 5,067
Posted:
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
DavidH3 (Florida)
Posts: 5
Posted:
Can you provide the IRS rules concearning Reserve Funds vs Operating expenses as you mentioned in your prior post

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