Profit and Loss - Operating and Reserve Account

Started by CarlosB3 • 9 replies • 161 views

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CarlosB3 (Florida)
Posts: 47

Posted:

Hi Everyone,

I have my doubts on how the monthly transfer to the reserve account is being recorded.

Right now, I am seeing both activities on the P&L
They offset each other, but I am not sure if this is the correct way of recording this.

For Example:

Income- Assessment - Transfer from Operating account $500.00
Expense - Transfer to reserve account $500.00

Our budget has an expense line item for the monthly transfer to the reserve (Expense Transfer to reserve)

But on the reserve side should this be going to the P&L? (The deposit is being reflected, and we can reconcile)

Please let me know your thoughts!

DeanJ
Posts: 1,786

Posted:

I have $2 in my right hand. I transfer $1 to my left hand. Where is the profit and the loss?

TimB4 (Tennessee)
Posts: 21,062

Posted:

My Association handles transfers to the reserves as an expense to the operating account.

CarlosB3 (Florida)
Posts: 47

Posted:

Hi Tim,

That is how we have it set up

transfers to the reserves as an expense to the operating account.

My question is how you record the entry on the reserve account

CarlosB3 (Florida)
Posts: 47

Posted:

Undestood,

My question is how you record this entry on the Reserve account.

I understand that it's an expense to the operating but what is the correct way to record this on the reserve account.
You have to reconcile both accounts.

ElleN (Idaho)
Posts: 1,339

Posted:

Quote:

Posted By CarlosB3 on 04/30/2025 7:39 AM
My question is how you record this entry on the Reserve account.

I understand that it's an expense to the operating but what is the correct way to record this on the reserve account.
You have to reconcile both accounts.

A transfer from the operating account to the reserve account is recorded as "income" to the reserve account.

Consider getting away from the "profit and loss" terminology. The HOA is a nonprofit. I believe this means "income" and "expense" are the appropriate terms.

CarlosB3 (Florida)
Posts: 47

Posted:

Thank you!

I guess I was thinking more in reference to financial statements
Or when Taxes are filled, I am assuming the accountant would need a BS and P&L?

Operating Account - Expense transfer to Reserve
Reserve account - Income to the reserve account

Correct ?

Thank you

ElleN (Idaho)
Posts: 1,339

Posted:

Quote:

Posted By CarlosB3 on 04/30/2025 1:39 PM

I guess I was thinking more in reference to financial statements
Or when Taxes are filled, I am assuming the accountant would need a BS and P&L?

I thought "P&L" is for for-profit corporations and "I&E" is for nonprofits. Linguistically speaking, anyway.

Google has some chatter. Granted I cannot say it is dispositive on the vocabulary. Google on these words:

nonprofits have a balance sheet profit loss income expense

I figure what is important is the "balancing" and so preservation of "double entry" principles. (As Goethe said, double entry is "one of the finest inventions of the human mind." And if you think I am being pretentious, then I plead guilty. I am not even a lay-bookkeeper. I understand reserve study math and also picked up on a lot of basic accounting rules and tax rules. I was a volunteer tax preparer for several years.)

What documents does the HOA tax preparer want? I know the tax preparer has to break up both income and expenses into "exempt activity" and "non-exempt activity" categories. I am familiar with the tax forms but what docs does the tax preparer use to do this? Some template developed over the years for the specific HOA, or a generic template tweaked and customized to a new HOA client? I am not sure. A sit-down with whoever is keeping the books certainly seems appropriate.

TimB4 might have a lot to say on the point.

Quote:

Posted By CarlosB3 on 04/30/2025 1:39 PM

Operating Account - Expense transfer to Reserve
Reserve account - Income to the reserve account

Correct ?

Yes.

ElleN (Idaho)
Posts: 1,339

Posted:

Quote:

Posted By CarlosB3 on 04/30/2025 1:39 PM

Or when Taxes are filled, I am assuming the accountant would need a BS and P&L?

Signs are you just about nailed it.

From https://rantax.com/nonprofit.html:

FINANCIAL INFORMATION
Whether you’re a nonprofit startup with a small staff or a large established charitable organization, financial information should be available through your office manager, staff bookkeeper, board president or board treasurer, CEO, or executive director.

* Profit & Loss Statement (Income & Expenses Report)
* Balance Sheet: Starting & Ending Balances, Liabilities, and Assets

But skim the whole site that I linked above.

KellyM3 (North Carolina)
Posts: 2,239

Posted:

Hire an accountant. Nothing more and nothing less.

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