Correct reserve expense entry in Statement of Revenues and Expenses?

Hello,

I have some questions about how the reserve contribution and the actual reserve expense should be entered in the HOA financial statements.

On our HOA's Statement of Revenues and Expenses in the annual audit, the accountant has listed the portion of the unit assessments for Major Repairs and Replacements (the Reserves) under Revenues, as I expected. But under Expenses, the accountant has entered the actual amount spent on repairs and replacements, and not the contribution to the reserve account. Is this correct? Or is it a matter of choice?

In the previous HOA where I lived, the reserve expense was the same as the amount collected, i.e it equaled the contribution to the reserve account. Separately, the audit reflected the reserve account beginning balance, plus the contribution, minus the actual disbursements, leaving the end-of-year balance. I believe that this method accurately reflected the Net Operating Income (NOI), which is Revenues minus Expenses).

My concern is that by using the actual reserve disbursement as the expense entry, instead of the contribution to reserves, we could, for instance, show an operating excess, when we actually have an operating deficit. Would this affect our taxable income? For example, if we collect $50,000 for reserves, but only spend $35,000, under this accountant's method, our NOI would be $15,000 higher that it should be. Likewise, if we were to spend $55,000 for repairs and replacements, the NOI would be $5,000 less than it should be. (It seems as if this method causes the excess or deficit in reserve spending to be "made up from" operating funds instead of reserve funds).

I hope that my question is clear. I have searched online for explanations and examples of other associations' financial statements. I could find no other instances in which the actual reserve expense was entered on the Statement of Revenues and Expenses. In every case I could find, either the reserve expense equaled the collected reserve assessment, or the reserves were accounted for in a separate column on the Statement of Revenues and Expenses.

Thanks and regards,

Thanks for your quick reply, Tim. I understand your example.

The point is, regardless how the funds are transferred or paid out during the year, the amount that is recorded as an expense on the Statement of Revenues and Expenses should be the entire contribution to reserves, and not the actual amount spent on the repair and replacement items (which may be more or less than the contribution amount).

Do you agree? Is there somewhere I can find this confirmed?

Thanks,

The line item for Reserves in the I&E report, in my opinion should be one of the following:

a) The total amount transferred into the Reserves
b) The net amount transferred into the reserves (what was required to be placed in Reserves minus any amount spent that would have been paid for from the reserves).

Note: If you use method (a) you should then include a line item for the reserve repair.

As I stated earlier, my Association uses method (a). However, both methods could work.