Checkbook Cash Balance

Another question and sorry I have so many!!!

This year, we have over $2400 in the checkbook that will not be spent or allocated in any way. Should this money be accounted for in some way? I know we can legally have it, but should it be put into the 2009 operating budget or maybe be put into reserve (or some of each)? I just for some reason thought each dollar in the checkbook had to be accounted/budgeted for something but I'm not sure. And I know $2400 doesn't sound like much, but our budget is only $10,000 so that would correlate to an amount of 24% of our budget being unassigned.

You also would be well advised to consider the consequences of IRS Revenue Ruling 75-371 which states in part:

With respect to regular assessments, section 61 of the Code defines gross income as all income, from whatever source derived, except as otherwise provided by law. Funds collected by a nonexempt organization by means of assessments for the purpose of normal operating expenses are taxable as ordinary income under section 61.Any funds accumulated as contingency reserves are also includible in the organization's gross income because the Internal Revenue Code does not provide for such accumulations without tax consequences.

Again, seeking competent tax advice is really important.

George,

I believe IRS Revenue Ruling 70-604 only applies if the HOA files Form 1120.

Thanks. You are correct. I failed to include that key piece of information.

Is operating expenses the same as budget??? If not, I don't know our operating expenses. Our budget is $10,000 as stated in OP so the 2400 is 24% of that.

I do not know if we file Form 1120. I could ask the Treasurer but he's a, um, hard to deal with.

Heather,

Your HOA should be filing IRS Form 1120-H, not Form 1120. They are not the same thing.

As far as "left over" money, you haven't given enough information, at least not for me, to make a determination as to whether there really is any "left over" money.

There's the budget, which should be balanced, and then there's cash flow. Normally, your cash flow should be positive, meaning there's more money in your checkbook than needed to pay your present bills, or at least equal, meaning there's always just enough. Since, as others have already noted, some bills are paid monthly whereas others may be paid annually, I would expect there should be money in the account for those bills you haven't received yet. On the other hand, it is conceivable that a business could have negative cash flow, meaning they have more bills than cash to pay them, so they would have to borrow to pay their bills. In that case they could still have a balanced budget provided that by year-end they had paid back the borrowed money and were now at zero (or close to it) balance with all money having been received and all bills paid.

Your checkbook balance represents your cash flow status, not the status of your budget.

Heather - at your next Annual Meeting, the Members MUST demand an accounting of all the finances. You will want to see an end-of-the-year financial statement that lists all the Revenue (Income) that came in, and all the Expenditures (Costs).

Plus a Balance Sheet, which will tell you the value of all the HOA accounts, (Checking, Reserve Fund, and any other accounts that have been set up)

You must insist on seeing the Annual Budget. The board needs to come up with a plan on how to spend its expected income (dues)

And you must insist that the board publish a newsletter telling the members what they are doing and what is in the plans for the future.