Setting up the Chart of Accounts and a budget

I am the treasurer for a very small subdivision of 34 lots. We are transitioning to self management so at this point I am in the process of setting up the books using QuickBooks On line. I'm an accountant, so this procedure is not new to me, although being on the HOA board is new. We have no common areas or assets to be serviced. So generally, our COA needs are very simple, and could actually be, Cash and Retained Earnings on the Balance Sheet. But things are never really quite that simple. I'm wondering if anyone has or can direct me to some sample COA's for review? Are there certain accounts I need to include? Mostly the Balance Sheet is my biggest concern.

A couple of other things I am wondering about concerns the use of and reporting of funds used to pay legal fees incurred because one homeowner has violated a provision of our CC&Rs requiring us to engage a lawyer, and also using association funds to clear a lot of weeds if the homeowner continues to ignore our request. We will attempt to collect those costs from the homeowners, so will they be reported on the balance sheet as a payable? What would be the proper title for that type of account? How should those issues be presented in the budget? It seems to me these would be paid from a reserve account and aren't actually "expenses" of the organization.

The Balance Sheet of the PM is very simple and basically as I said - cash and retained earnings, since we are so new, they have no label for Equity except for Net Income, so once the year finishes I'm not sure what label they will use. One sample BS that I have names the equity section "Reserve" another names it "Members Equity" and there are accounts shown for "Accumulated Reserve" which is essentially Retained Earnings, and Litigation Reserve. Would that create confusion to someone reading the financials? With the anticipated expenses caused by the two noncompliant homeowners, should there be Balance Sheet accounts for them, such as "Litigation Reserve" or "Cranky, NonCompliant Homeowner Reserve"? It doesn't feel like those should be part of our operating budget since we will ask for reimbursement from the homeowner. I know I'm going to have more questions as this develops, thanks for taking the time.

Thanks for the accounting lesson Richard - I am an accountant and I do know how the Balance Sheet works. The Balance Sheet I mentioned uses "Accumulated Reserve" in lieu of Retained Earnings, which I wouldn't have thought to use in any event. It also has an account in the equity section called Litigation Reserve, how would that account be used? I don't mean to sound snarky, I know you are helping and I appreciate it.

Thanks Richard. My inclination is to keep it as simple as possible, so I'll just keep it to Retained Earnings. From your comment, I'm thinking the HOA using the BS mentioned may have been anticipating a legal action against themselves.

Moving away from that then, we will incur legal costs for addressing the issue with the non-compliant homeowner (the homeowner has been apprised by our lawyer that he will be responsible for any legal fees we incur getting him to set his lot to rights), and it is highly likely we will end up paying to clear the weeds from a vacant lot, and possibly followed by legal costs in the form of a letter to that same homeowner to pay up. Would we include those as operating costs on our budget? We have no common areas so paying for the weed clearing isn't a normal operating cost.

We do have an HOA attorney on retainer at $500/ann. but our operating budget line item is $xx xxfor Legal Fees, General for 2018.

another way to consider is your Contingency line item could be budgeted for this possible expense. That's what we use our for--unanticipated expenses.

I don't know the language of these things like you & Ricard so I might be thinking incorrectly, but I don't see how legal fees could be in a reserves account. Reserves are only for physical common area components that have an estimated lifespan and estimated replacement cost. Absent any common areas, I'd guess you don't need a reserves account.