Get 2 months of free community web site hosting from Community123.com!
Sunday, October 21, 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: Bookkeeping issue
Prev Next
Please login to post a reply (click Member Login on the menu).
Author Messages
MelissaB6
(Georgia)

Posts:1


10/09/2018 1:46 PM  


We switched from a bookkeeper to a CMA and after reviewing our books they sent the following:

A project which is funded by Reserves as the payment source is generally considered a Reserve (capital) expense.  Normally the expenditure is identified in the Reserve Study and the repair/renovation occurs approximately in the reserve study timeline.  Hence the reason to have a reserve study updated at intervals to accommodate current inflationary and asset conditions to determine the accuracy of your current funding.  This is the Achilles heal of most associations.  Underfunding.      

 Much of the items lingering on your Balance Sheet were created by your prior bookkeeping service were created in error.  They would be realistic in a For Profit business but not for a Not for Profit entity like a HOA.  Your previous path of bookkeeping ended up in a significant error in accounting.  I attempted to address this with you several months ago but you put the discussion off to a future time.  The difference is in a business, depreciation and other expenses are an IRS issue with determining net income subject to income tax.  In an association the income you receive is already post tax income.  So these factors (depreciation) are not the point in considering your cash flow net income. 

 The reserve contribution (transfer) expense is a key reference point since this allocation of receipts essentially is a sinking fund accumulation to pay for a future  bill.  As such, these expenditures which you were putting on the balance sheet created a doubling of expense impact.  Both the depreciation and reserve allocation are expenses to the income statement.  They do not work well together hence why we do not utilize depreciation (IRS tax guidelines) to prepare financials. 

How correct are they and is it to my benefit to change?
RichardP13
(California)

Posts:3059


10/09/2018 2:01 PM  
Actually, they are quite correct.

As they pointed out, the majority of HOA are not-for-profit institutions. What sets an HOA apart from the majority of corporation, is they do not depreciate their assets, not do they pay their shareholders.

The majority of HOA's file a 1120-H, means they have some form of exempt status, essentially that their income/dues are not taxable if offset with equal expenses. Another issue I have seen is management companies or bookkeepers do not expense the contributions from operating to reserve accounts. That will create an issue on the balance sheet.

Could you depreciate your assets. Sure, but you then to file a 1120-S and you will pay income taxes that previously you were exempt from.
GeorgeS21
(Florida)

Posts:669


10/11/2018 8:37 AM  
Your HOA was a not for profit and was depreciating assets?
AugustinD


Posts:1127


10/11/2018 9:22 AM  
-- I concur with others about the inappropriateness (to say the least) of having a line item for depreciation. I have never seen a HOA list depreciation as a line item.

-- The other issue the accountant seems to be raising is counting the transfer to the reserve fund as an expense while also counting payments for repairs/replacement of capital assets as an expense as well. I agree this is an inappropriate repeat of expenses. Many HOAs have a budget for operating costs and a second budget for reserve funding. They work side by side, of course, since they are both funded by assessments. The first budget has operating expenses. Like the accountant said, the second budget has capital expenses.


Please login to post a reply (click Member Login on the menu).



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