HOA Reserves on the Balance Sheet

dori123 · ‎May 13, 2021

We have a small HOA with a budget of $100,000. On our Balance Sheet our bookkeeper lists Dues and Reserves as Income. Later, in the Expense category, he lists the same amount of Reserves as an expense.

So for example, our Dues account for $94,000 of our total income and Reserves account for $6,000, making the entire budget $100,000. Note that we are currently in "save" mode and are not using our Reserves; we are putting all Reserves into the Reserve fund. Later in the Balance Sheet, $6,000 of Reserves are taken out as Expense.

It seems to me that because Reserves are put into this Income category, the Balance Sheet appears to artificially inflate the yearly budget. (Instead of our total income being $94,000 -- which is the total of the dues collected -- it is $100,000.)

I can see putting our Reserve amount into Income if we do a transfer that year and acutally *use* the Reserves, but why are they being put into Income when we are in "savings" mode? Seems they should be an Expense only and not Income.

(This has come up because certain types of units pay a percentage of the budget. If the budget is $100,000 instead of $94,000, the amount they pay changes.)

Can anyone explain if this is correct or not?

Thank you!

Edit: $94,000 not $90,000

Rustler · ‎May 13, 2021

The dues you collect are income, all of them for that period, and they are deposited in a bank account.

Then you transfer x-amount from the operating bank account to either another bank account called reserves, or an asset account named the same.

Now income is recorded, and any reserves are isolated on the balance sheet as they should be.

moving funds is not an expense, ever.

TreasurerofSSAI · ‎July 14, 2023

@Rustler

I understand what you are saying for the balance sheet. But in our HOA, the amount to go in reserves is a percentage of the annual dues collected. How do I show the transfer as an "expense" on the P&L? I haven't been, so it is inflating the bottom line, and looking like we are just collecting $$, when in fact we are required to set the reserves aside.

Thanks!!

Linda48328 · ‎January 04, 2024

I have the same question.

when you look at the budget vs actual, it doesn’t take into account the amount’s transferred from operating to reserve and gives an inaccurate bottom line.
i have the same issue with a LOC payment. It decreases the liability and expenses the interest amount of the payment but on the budget, it doesn’t take the entire amount into consideration when using budget vs actual and makes it look like we’ve spent less money than we have.

I dont think QB is the best software for an HOA and am looking elsewhere.

Rainflurry · ‎January 05, 2024

@Linda48328

"when you look at the budget vs actual, it doesn’t take into account the amount’s transferred from operating to reserve and gives an inaccurate bottom line."

Are you saying that your P&L doesn't show the reserve expense? Reserves are income when collected and an expense when moved to equity on the balance sheet. I've been treasurer of a couple of HOAs and QB works just fine IMO. The proper way to account for reserves is to record them as income when received and then create a journal entry that debits your Replacement Reserve expense account and credits your Replacement Reserve equity account. That creates the offsetting expense entry on your P&L with a corresponding amount to equity on the balance sheet so those funds can be spent from there when needed.

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HOA Reserves on the Balance Sheet