Get 2 months of free community web site hosting from Community123.com!
Thursday, October 18, 2018
Get 2 months of free community web site hosting from Community123.com!


SBCA: Free education for HOAs and condos on satellite placement issues.
(National Trade Organization)
Helping HOAs, condos and property managers with satellite placement issues since 1986.
Only members have access to all features.
Click here to join HOATalk for Free! Members click here to login and access all features.
Subject: Setting up the Chart of Accounts and a budget
Prev Next
Please login to post a reply (click Member Login on the menu).
Author Messages
PaulaW2
(Hawaii)

Posts:23


12/23/2017 1:32 PM  
I am the treasurer for a very small subdivision of 34 lots. We are transitioning to self management so at this point I am in the process of setting up the books using QuickBooks On line. I'm an accountant, so this procedure is not new to me, although being on the HOA board is new. We have no common areas or assets to be serviced. So generally, our COA needs are very simple, and could actually be, Cash and Retained Earnings on the Balance Sheet. But things are never really quite that simple. I'm wondering if anyone has or can direct me to some sample COA's for review? Are there certain accounts I need to include? Mostly the Balance Sheet is my biggest concern.

A couple of other things I am wondering about concerns the use of and reporting of funds used to pay legal fees incurred because one homeowner has violated a provision of our CC&Rs requiring us to engage a lawyer, and also using association funds to clear a lot of weeds if the homeowner continues to ignore our request. We will attempt to collect those costs from the homeowners, so will they be reported on the balance sheet as a payable? What would be the proper title for that type of account? How should those issues be presented in the budget? It seems to me these would be paid from a reserve account and aren't actually "expenses" of the organization.
RichardP13
(California)

Posts:3054


12/23/2017 3:09 PM  
First thing I would do is look at how the financials were setup with the management company you are no longer using. Hopefully, they will help you with the expenses and income categories you are looking for.
PaulaW2
(Hawaii)

Posts:23


12/23/2017 3:35 PM  
The Balance Sheet of the PM is very simple and basically as I said - cash and retained earnings, since we are so new, they have no label for Equity except for Net Income, so once the year finishes I'm not sure what label they will use. One sample BS that I have names the equity section "Reserve" another names it "Members Equity" and there are accounts shown for "Accumulated Reserve" which is essentially Retained Earnings, and Litigation Reserve. Would that create confusion to someone reading the financials? With the anticipated expenses caused by the two noncompliant homeowners, should there be Balance Sheet accounts for them, such as "Litigation Reserve" or "Cranky, NonCompliant Homeowner Reserve"? It doesn't feel like those should be part of our operating budget since we will ask for reimbursement from the homeowner. I know I'm going to have more questions as this develops, thanks for taking the time.
RichardP13
(California)

Posts:3054


12/23/2017 3:54 PM  
Retaining Earnings are year over year profit/loss of the COA, not accumulated reserves. This figure remain constant throughout the year

Net Income comes from the month to month income statement, either profit or loss and will change month to month. At the end of the year, this number is either added or subtracted from the retained earning.

The Balance Sheet is Asset equals Liabilities plus equity. Equity is made up of retained earnings, net income and monies categorized for reserves.

My suggestion, ask for some help. They need to look at your current financials to properly setup your books. I am afraid you are going in the wrong direction. I am speaking from experience as I own a management company and do this all the time.
PaulaW2
(Hawaii)

Posts:23


12/23/2017 4:44 PM  
Thanks for the accounting lesson Richard - I am an accountant and I do know how the Balance Sheet works. The Balance Sheet I mentioned uses "Accumulated Reserve" in lieu of Retained Earnings, which I wouldn't have thought to use in any event. It also has an account in the equity section called Litigation Reserve, how would that account be used? I don't mean to sound snarky, I know you are helping and I appreciate it.
RichardP13
(California)

Posts:3054


12/23/2017 5:34 PM  
Litigation Reserves could be an item in Equity, IF the money was already on hand and if it were to used in the future for litigation the association is pretty certain to happen in the future.

Accumulated Reserves and Retained Earnings are two separate animals. It is possible that whoever set it up previously didn't use that category.

From experience you can have an elaborate chart of accounts or a very simple one. Always remember how you want it setup when it may get transferred to another treasurer or Board member or bookkeeper.
PaulaW2
(Hawaii)

Posts:23


12/23/2017 6:15 PM  
Thanks Richard. My inclination is to keep it as simple as possible, so I'll just keep it to Retained Earnings. From your comment, I'm thinking the HOA using the BS mentioned may have been anticipating a legal action against themselves.

Moving away from that then, we will incur legal costs for addressing the issue with the non-compliant homeowner (the homeowner has been apprised by our lawyer that he will be responsible for any legal fees we incur getting him to set his lot to rights), and it is highly likely we will end up paying to clear the weeds from a vacant lot, and possibly followed by legal costs in the form of a letter to that same homeowner to pay up. Would we include those as operating costs on our budget? We have no common areas so paying for the weed clearing isn't a normal operating cost.
KerryL1
(California)

Posts:5749


12/24/2017 3:51 PM  
We do have an HOA attorney on retainer at $500/ann. but our operating budget line item is $xx xxfor Legal Fees, General for 2018.

another way to consider is your Contingency line item could be budgeted for this possible expense. That's what we use our for--unanticipated expenses.

I don't know the language of these things like you & Ricard so I might be thinking incorrectly, but I don't see how legal fees could be in a reserves account. Reserves are only for physical common area components that have an estimated lifespan and estimated replacement cost. Absent any common areas, I'd guess you don't need a reserves account.
KerryL1
(California)

Posts:5749


12/24/2017 3:51 PM  
We do have an HOA attorney on retainer at $500/ann. but our operating budget line item is $xx xxfor Legal Fees, General for 2018.

another way to consider is your Contingency line item could be budgeted for this possible expense. That's what we use our for--unanticipated expenses.

I don't know the language of these things like you & Ricard so I might be thinking incorrectly, but I don't see how legal fees could be in a reserves account. Reserves are only for physical common area components that have an estimated lifespan and estimated replacement cost. Absent any common areas, I'd guess you don't need a reserves account.
Please login to post a reply (click Member Login on the menu).
Forums > Homeowner Association > HOA Discussions > Setting up the Chart of Accounts and a budget



Get 2 months of free community web site hosting from Community123.com!



News Articles Provided by: Community Associations Network
News, articles and blogs about condos/HOA's

Only members have access to all features.
Click here to join HOATalk for Free! Members click here to login and access all features.







General Legal Notice:  The content of forum messages are from the posting member and have not been reviewed nor endorsed by HOATalk.com.  Messages posted by HOATalk or other members are for informational purposes only, are not legal or professional advice and do not constitute an attorney-client relationship.  Readers should not act upon this information without seeking professional counsel.  HOATalk is not a licensed attorney, CPA, tax advisor, financial advisor or any other licensed professional.  HOATalk accepts ads from sponsors but does not verify sponsor qualifications nor endorse/guarantee any sponsor's product or service.
HindmanSanchez Legal Notice:  (For messages posted by HindmanSanchez) This message has been prepared by HindmanSanchez for informational purposes only and does not constitute legal advice. This information is not intended to create, and receipt of it does not constitute an attorney-client relationship. Members of HOATalk.com should not act on this information without seeking professional counsel. Please do not send us confidential information unless you speak with one of our attorneys and get authorization to send that information to us. If you wish to initiate possible representation, please contact an attorney in our firm. Our attorneys are licensed to practice law in the state of Colorado only.

Legal Notice For Messages Posted by Sponsoring Attorneys: This message has been prepared by the sponsoring attorney for informational purposes only and does not constitute legal advice. This information is not intended to create, and receipt of it does not constitute an attorney-client relationship. Readers of HOATalk.com should not act on this information without seeking professional counsel. Please do not send any sponsoring attorney confidential information unless you speak with the sponsoring attorney or an attorney from the sponsoring attorney’s firm and get authorization to send that information to them. If you wish to initiate possible representation, please contact an attorney in the firm of the sponsoring attorney. Sponsoring attorneys that post messages here are licensed to practice law in a specific state or states as indicated in their message signature or sponsor’s profile page. (NOTE: A ‘sponsoring attorney’ is an attorney that is a HOATalk.com official sponsor and is identified as such in the posted message or on our sponsor page.)

Copyright HOA Talk.com, A Service of Community123 LLC ( Homeowners Association Discussions )   Terms Of Use  Privacy Statement