accrual financial report

Started by KW3 • 4 replies • 1644 views

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KW3 (California)
Posts: 146

Posted:

Hi, I am not an accountant, but have a need reviewing our association financial reports. I believe that in CA accrual reports are required (cash reports are optional). Our MC accounting staff serve to provide financial reports. Due to the nature of "accrual" setting, previous month's reports are not available in current month. Question: what is the accrual cutting-off date of a month (we know the cutting-off date of cash reports is always the end of the month)? e.g., is the accrual cutting-off date of each month the 15'th of the next month? If this is true, how early the accrual reports of Feb should be available according to normal accounting practice? Will around the end of March or early April be reasonable? or it has to be after 15'th of April? Thanks in advance

DavidW5 (North Carolina)
Posts: 565

Posted:

KW3,

Here in Virginia HOA monthly financial statements are required to use the accrual method of accounting. The cut off date is the end of the month and the reports in our HOA are made available from the management company by the 15th of the following month.

Use of accrual accounting should not affect the date that the reports are available. To oversimplify, accrual accounting requires that the value of goods and services be posted as an expense in the accounting period when they are received, regardless of whether they have been invoiced or paid. In other words (for example), if the HOA's common areas are mowed before the end of the month but the invoice from the landscaping contractor has not been received, the value of mowing should be accrued in that month's report.

Dave

KW3 (California)
Posts: 146

Posted:

Thanks, Dave. But I found your response surprising and need more answers.

Quote:

Posted By DavidW5 on 12/16/2010 4:36 PM

Here in Virginia HOA monthly financial statements are required to use the accrual method of accounting. The cut off date is the end of the month and the reports in our HOA are made available from the management company by the 15th of the following month.

This is amazing comparing to our MC's reports which are usually available around the end of the following month or early of the next following month.

Quote:

Use of accrual accounting should not affect the date that the reports are available. To oversimplify, accrual accounting requires that the value of goods and services be posted as an expense in the accounting period when they are received, regardless of whether they have been invoiced or paid.

Well understood.

Quote:

In other words (for example), if the HOA's common areas are mowed before the end of the month but the invoice from the landscaping contractor has not been received, the value of mowing should be accrued in that month's report.

My doubt at this point: since all expense/cost incurred within the month (invoiced or not, paid or not) have to be accrued in that month's reports, doesn't the accountant need to wait until invoices received and checks cut for payments? Which may occur well late into the following month or even the next following month? Entertain me if I am wrong (I hope I am wrong).

DavidW5 (North Carolina)
Posts: 565

Posted:

No, the accountant does not have to wait. The accrual should be based on the best information available as of the end of the month. The accrual can be based (in the example I used earlier) on previous charges for mowing the common areas. If that is not available, the accrual can be based on prevailing local rates for such services. If that is not available, then it can be the accountant's best guess. That may seem a little strange but a guess is better than closing the month's books with a zero accrual and gives a more realistic picture of the HOA's true financial condition than no accrual at all. By delaying reporting until the invoice or other accurate number is available, the value of the report in managing the HOA's affairs is greatly diminished. Any bookkeeper worth his fee should be able to deliver your monthly report not later than 20 days after the close of the accounting period.

KW3 (California)
Posts: 146

Posted:

Thanks, Dave. Interestingly, maybe our MC has found the message here that they just noticed our board that they will be able to provide our financial reports early of the next following month (early March for Jan report) which the board asked earlier and they denied with difficulty to work out. Believe it or not: this forum is actually very helpful in many real hoa cases.

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