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Subject: HOA Reserves Accounting
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Author Messages
DW11
(FL)

Posts:11


05/13/2021 6:52 AM  
We have a small HOA with a budget of $100,000. On our Balance Sheet our bookkeeper lists Dues and Reserves as Income. Later, in the Expense category, he lists the same amount of Reserves as an expense. 

So for example, our Dues account for $90,000 of our total income and Reserves account for $6,000, making the entire budget $100,000. Note that we are currently in "save" mode and are not using our Reserves; we are putting all Reserves into the Reserve fund. Later in the Balance Sheet, $6,000 of Reserves are taken out as Expense. 

It seems to me that because Reserves are put into this Income category, the Balance Sheet appears to artificially inflate the yearly budget. (Instead of our total income being $94,000 -- which is the total of the dues collected -- it is $100,000.)

I can see putting our Reserve amount into Income if we do a transfer that year and acutally *use* the Reserves, but why are they being put into Income when we are in "savings" mode? Seems they should be an Expense only and not Income.

(This has come up because certain types of units pay a percentage of the budget. If the budget is $100,000 instead of $94,000, the amount they pay changes.)

Can anyone explain if this is correct or not? 

Thank you!



BarbaraT1
(Texas)

Posts:587


05/13/2021 7:40 AM  
Reserve contributions are an expense from the operating account and income to the reserve account.
MaxB4


Posts:1580


05/13/2021 10:10 AM  
Sorry, but a Balance Sheet does not have categories for Income and Expense. Items on a Balance Sheet are Assets, Liabilities and Equity.
JohnC46
(South Carolina)

Posts:11638


05/13/2021 1:12 PM  
In our association, Reserve Funding is a budgeted line item expense such as our Utility Bill is as we pay money into Reserve Funding Monthly same as we pay our utility bills monthly.
GaryJ5
(New York)

Posts:10


05/27/2021 11:54 AM  
I believe the proper accounting method has Reserve funds on the budget sheet is to show it as equity an as the reserve is utilized (spent) it is posted as an expense or capital item and removed from the equity. i also believe interest made off the reserve account goes into that particular account adding to equity.
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