Page 10 - New England Condominium July 2021

10 NEW ENGLAND CONDOMINIUM
-JULY 2021
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Accrual off ers an association a more compre-
hensive view of both its operating results and
its overall fi nancial position. Th is is particu-
larly true for: assessments, accrued but unpaid
expenses (i.e., Accounts Payable), and prepaid
expenses. With a more complete view of the
association’s fi nancial standing, it’s easier for
a board to plan and make decisions, particu-
larly when working with a complex budget.
If accrual has a drawback, it may be that
it’s a more complex and nuanced accounting
method, and therefore requires a bit more of
its users than cash basis. Accrual accounting
records and tracks all transactions that take
place in each operating period without re-
gard to when the cash transaction takes place.
Non-cash-based transactions (like Accounts
Receivable, Accounts Payable, and Prepaid
Expenses) are recorded on the balance sheet
of the fi nancials, rather than having all trans-
actions on the income statement. It can take
some time to understand how this somewhat
subtle diff erence aff ects the recorded transac-
tions, and the interplay between the income
statement and the balance sheet. However, be-
cause condos, co-ops, and HOAs oft en have
complicated long-term capital reserve assets
and expenditures, understanding how accrual
accounting transactions are recorded and the
relationship among these accounts is essential
for good fi nancial management.
In Summary
To recap: for a small association with a
limited number of people receiving and us-
ing the community’s fi nancials, cash basis
information may be appropriate. For larger
associations with more complex budgets and
capital reserve requirements, or those with
many external users and stakeholders, accrual
accounting is necessary to provide insights
that are simply not available in cash basis ac-
counting.
No matter the size or complexity of your
community, however, performing a needs
analysis prior to adopting or adjusting an
accounting system is crucial to really under-
stand the needs and wants of your particular
organization. Ask yourself who’s using your
statements; what information is important to
them for their decision-making? Is a simple,
easy-to-understand statement most impor-
tant, or is more granular detail critical to mak-
ing good decisions? Simply put, your choice
of an accounting method and fi nancial state-
ment format should serve the purpose and
needs of the primary users of the information.
Jim Merski, CPA, MBA, CFE, is the Chief
Financial O cer at Newton, Massachusetts-
based Barkan Management. He has over 20
years of experience in the real estate industry.
Ryan Galvin is an Accounting Manager at
Barkan Management, with 13 years of experi-
ence in property management.
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ACCRUAL VS. CASH
continued from page 8