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To properly manage a community association’s finances, it is vital to understand the financial statements and what they represent. Even if the association uses a CPA (which it should), transparency and accuracy are crucial. The association’s board of directors and its members should have a simple understanding of the documents and how to properly review and analyze them.
Below is a general overview of a community association’s financial reports and how to understand them.
As the title indicates, the most important thing to remember about the balance sheet is that it should always balance. The balance sheet is included in the association’s monthly reports. The balance sheet reflects the association’s financial condition by listing the assets minus liabilities to equal the net worth. Assets may include cash, liabilities, amounts owed, or insurance values remaining. Liabilities may include prepaid assessments, loans or bills owed.
The general ledger provides detailed information about the financial transactions for the association. It is not technically a financial statement but is one of the most important financial documents. It provides an overview of all financials and should be diligently updated to record every transaction including account number and date. The general ledger can be used as a basis of comparison for other financial statements, so it’s very important to include every transaction.
Accounts Payable Report
The accounts payable report lists the association’s outstanding debts, monthly expenditures, and unpaid expenses. This report is important to ensure the association pays all amounts due in a timely manner and maintains a healthy working relationship with vendors.
Cash Disbursements Ledger
Sometimes referred to as the check register, the cash disbursements ledger lists all cash purchases and checks that have been written by the association. The register includes the date, payee, amount, description of expense, check date (if applicable), check number (if applicable), invoice number, and budget code number. The ledger provides an overview of all expenditures and should be updated regularly and consistently.
Statement of Income and Expense
The statement of income and expense provides a snapshot of the association’s financial status for the month and for the year. This report contains the actual amount spent compared to the amount budgeted and displays the difference between the two amounts. It also accounts for year-to-date numbers to give a glimpse of where the association stands money-wise.
Each of these statements is important to protect and maintain the community association’s funds. Understanding these key financial concepts will help board members responsibly serve the association.
Even with an understanding of these statements, it’s vital to have an accountant familiar with the industry. The professionals at Cavanaugh & Co. have served hundreds of community association clients for more than 40 years. We understand the industry and we are here to provide solutions.
At Cavanaugh & Co, we work with community associations to help them make smart financial decisions. Contact us today to schedule an appointment.
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