To have a true understanding of your communities’ finances, you need more than just a collection of monthly totals; you need to understand what your numbers mean and how to use them to answer specific financial questions. The answers are in your Month End Reports, often referred to as your monthly financials.
You really only need to begin with 6 basic reports. If you have all the information listed correctly on these reports in standard accounting forms, your financials will be on point every month and fully transparent. No matter what software you use to manage your communities, even a paper ledger sheet, the following reports will satisfy any of your board members – no matter how picky (and we all know every community has someone on the board who is never satisfied!)
1. Balance Sheet
The first report we will review is the Balance Sheet – your balance sheet should be structured as so:
Assets, which consists of:
- Cash Accounts (as in your bank accounts) you want to make sure you have them all listed in the top section of your balance sheet. They should have the ending balance for the month.
- Accounts Receivables – the outstanding dues that are owed to the Community – this can include fees or fines.
- Prepaid Insurance- these are insurance premiums paid in advance.
Now you will have a TOTAL – this is your TOTAL Assets -Your Money
Liabilities , is what you owe:
- Accounts payables- which are your bills.
- Prepaid Balances- this is money your homeowners have paid in advanced to cover their dues.
This is what a basic balance sheet consists of - you can add in your Reserves and break out these accounts in more detail, but this is the basic layout.
2. Profit & Loss Statement
Now the other side of your assets and liabilities are the income and expenses, or what some people call the P&L or Profit Loss Statement. I also like to have a budget listed so I can see if there are any variances.
On your income and expense statement, the first section will be your income accounts. In accrual accounting this is not the funds you have taken in for the month - the income accounts are your billings, period. Again this only pertains to accrual accounting. The bottom line figure, current net/year, and income/loss on this report should match your balance sheet.
The second part of the report is the income and expense statements are going to list your expenses and that is exactly what that means, your expenses. What you have paid out for utilities, admin services, office supplies and if you have used any of your reserve money.
3. Owner Balances
The third report that you are going to need is an owner balance summary report. An owner balance summary report should consist of all your home owner accounts regardless of balances or zero balance due. The total on the last page should consist of all your receivable accounts and your prepaid accounts. The figures on this last page must match the figures that you have on your balance sheet in the receivables section and your prepaid. This report should pull straight from your homeowner accounts no matter what accounting software you are using, this should be running totals per GL account. If you run a balance sheet on say 6/30/12 and you run your owner balance summary as of 6/30/12 the figures must match.
4. Aged Payables Report
Now let’s take a look at the other side-Paying the Bills!
Every accounting software program should be able to provide you with an aged accounts payable report. This aged report should consist of all the outstanding bills that your community owes up to a specific time frame. We will use the date of 6/30/12 as an example; this report should show all unpaid invoices from vendors up to the 6/30/12 date. For clarification for your board members, this report should include the name of the vendor, invoice description, date and the amount of the invoice.
At the end of the report you should find a total, the total should match your balance sheet and the liabilities section under the specific GL account labeled accounts payable, and this must match your balance sheet at all times.
5. Checkbook Register
The next report you need to include in your monthly financials packet is the Accounts Payable Check Register report, which is intended to provide additional transparency to the board members. This report will answer board members questions regarding checks that were written within the month, and all information applicable to each invoice and its payment from the community’s funds.
After you have taken your bank statement (the one that was provided to you by the bank), run a report that shows only outstanding items, items that have not yet cleared the bank but have been processed through the accounting software (this is often called a checkbook reconciliation report). This report gives you a total of what is in the bank account, which must match to your balance sheet assets account.
6. Homeowner Deposits
The final report that I advise my clients to provide board members with is a homeowners deposit report for the month. This report gives a breakdown of the homeowners’ real cash deposits. The bottom line on this report will show the board member the actual cash income they have received for the month.
I believe if you utilize all of the information and reports provide by the material and methodology the end result will be fewer questions and smoother operations.
Remember that it's not enough to print out the reports, you need to know what they say! I have had numerous clients that have faced the Board – and when asked questions regarding a certain entry on a report, they crumble. Your own knowledge of your reports will be your saving grace.
Nancy Marry is the Team Leader for TOPS Technical Support, and she has a significant background in both Goods and Services accounting and Community Management accounting. We've asked Nancy to share some tips with our readers on best practices in Community Management accounting.
This article is provided as a best practice for Community Management Accounting. Be advised that TOPS Software is not a certified public accounting firm. You should always take your CPA's advice for financial management.