Is further accounting needed for excess cash remaining in our operating account (at year-end)

Are there GAAP accounting rules that allow excess operating cash (built up over the years) to be record as an expense in the present year so that it can be recorded as income in the following year (when its reversed)?

These entries are being recorded in our accounting system as manual journal entries which do not seem proper if NO additional cash (income) will be received (earned). Their effects seem to be temporarily distorting our financial results and condition.

I presume we can add this excess cash to reserves or refund back to homeowners to avoid a taxable event. But we also need this money in our operating account due to timing differences of receipts and payments.

I seek feedback whether a journal entry is necessary when we have a nice operating cash balance. The amount has been approximately $30K and our annual dues were $265K for the past 3 years.

Thanks in advance, KimB1

Mary:

To some extent! But I forget - its really a combination of a small profit built up over 15 years (~$10K) and mostly due to deferred income from owners paying in advance (~ $20K/year).

The present board should consider switching to accrual method and discontinue a practice that was handed down from the prior board with these entries.

I'm pretty certain we file the 1120-H since we pay tax only on our investment income.

Thanks for prompting my thought process. Kim

Kim, please reread Mary's post. If you understand GAAP then her post should be very clear to you. The accounting term is Net Profit not "excess cash". This can be handled by by any accounting method by a transfer to the reserve account and be recorded as an expense on the Income Statement or else it is recorded as Retained Earning on the Balance Sheet.

We am having the same issue as reported above. Our manager insists on entering any NOI from the previous year as "carryover" to income for the next year. I am not an accountant but I understand that in accrual accounting the equity is determined by combining current and prior income/losses from inception and that as well as all the other funds are the only thing that should be "carried over". Also as described above, the income and expense accounts are reset and start at zero. What they are doing distorts the income and therefore the NOI for the current year.

I have discussed this with the person responsible for the manager's accounting and have gotten nowhere. Where could this practice have originated from? At my previous condo we evaluated our cash position at the end of the year and as a Board decided to reduce or add to assessments calculated from the adopted budget for the following year as necessary to
adjust equity for the next year. Normally we had positive NOI so we reduced assessments to return surplus amount to owners. But this was a board decision, not a manager's or accountant's decision.

The manager has stated that this is required by Florida statute. If it is, I can't find it. (This would be ch.718 since we are a condominium).

The only thing I can think of is that they have confused a requirement of the IRS that if the association elects to file a 1120 that to avoid tax on excess assessments there must be an election to do so in a member's meeting, and the NOI must be returned to owners or applied as a reduction of assements in the next year. We file a 1120-H and I think that assessments are not normally taxed no matter how big the member's equity becomes.

Is my non-account's interpretation correct? If so, can anyone steer me to a source of guidance so I can prevail and eliminate this practice?

Thanks for any help...

Income is recorded when it is earned or when it was received depending on your chosen method. The fact you had earnings is good. Once your board re-records the same money again and calls it income a 2nd time is when financial results become distorted. In summary all you really have is leftover money in the bank for emergencies - a very good thing. Keep in mind this money probably exists from dues received in advance of their due date. (income next year - not the past year!)

Our association had $30K cash at the end of 2009. Our accounting records also revealed that $40K of dues were receoved in advance. To me this means our HOA was in a deficit position by $10K for 2009.

But guess what - our board inflated income by the $30K of leftover cash and then publishd financial reports showing a profit of $10K. It's hard to fight and correct without support from your neighbors. When I reviewed our accounting records the disortion was made with a journal entry and then reversed in the following year. There was no missing cash. But I am blacklisted and harassed because I questioned a proven improper accounting practice.

An audit should reveal this improper accounting but its expensive, a self review could help but good luck getting people together. If you do make sure you have one person who understands right from wrong and undertands accounting.

More than one person on the board should know what's going on. All should review bank transactions or be given the opportunity to do so.