Bookkeeping issue

We switched from a bookkeeper to a CMA and after reviewing our books they sent the following:

A project which is funded by Reserves as the payment source is generally considered a Reserve (capital) expense.  Normally the expenditure is identified in the Reserve Study and the repair/renovation occurs approximately in the reserve study timeline.  Hence the reason to have a reserve study updated at intervals to accommodate current inflationary and asset conditions to determine the accuracy of your current funding.  This is the Achilles heal of most associations.  Underfunding.      

 Much of the items lingering on your Balance Sheet were created by your prior bookkeeping service were created in error.  They would be realistic in a For Profit business but not for a Not for Profit entity like a HOA.  Your previous path of bookkeeping ended up in a significant error in accounting.  I attempted to address this with you several months ago but you put the discussion off to a future time.  The difference is in a business, depreciation and other expenses are an IRS issue with determining net income subject to income tax.  In an association the income you receive is already post tax income.  So these factors (depreciation) are not the point in considering your cash flow net income. 

 The reserve contribution (transfer) expense is a key reference point since this allocation of receipts essentially is a sinking fund accumulation to pay for a future  bill.  As such, these expenditures which you were putting on the balance sheet created a doubling of expense impact.  Both the depreciation and reserve allocation are expenses to the income statement.  They do not work well together hence why we do not utilize depreciation (IRS tax guidelines) to prepare financials. 

How correct are they and is it to my benefit to change?

Your HOA was a not for profit and was depreciating assets?