How to record Reserves properly for a very small HOA company

spudster · ‎January 21, 2024

We have a very small HOA that was established a couple of years ago. We are slowly building up our reserves for basically our future private road maintenance needs. I use QBs desktop.

I have a checking operating account and a reserve savings account. We collect HOA dues annually and that is our only income except for interest earned from the savings account.

I have forecasted how much is needed to go into reserves for the next 10 years. Each year when I collect annual dues, I deposit it into the operating fund. I then transfer the needed amount for that year to the reserve account.

But how to I record the reserve transfer correctly so it shows on the balance sheet correctly? I need step-by-step instructions.

Also, when I need to draw on reserve funds for that year, can I have step-by-step guidance on how to do so?

ShaniamarieC · ‎January 21, 2024

Hi there, @spudster.

Allow me to share some insights on how to record reserves properly for a very small HOA company in QuickBooks Desktop.

When you collect dues, they are considered as income for that specific period, and you need to deposit them in a bank account. There's no need to create a separate bank sub-account. You can create an equity account with the reserve balance. That allows you to see how much has been set aside for reserve replacements but still keeps the cash in the savings account.

The proper way to handle reserves is to start by recording all dues from the homeowners as income. Then, make a journal entry that will simultaneously create an expense for the amount put into reserves and allocate those funds to a reserve equity account. That will offset the HOA's income since reserves are not taxable, but it will not have any effect on the bank account.

Here’s what to do to create Journal Entry:

Go to the Company menu and select Make General Journal Entries.
Fill out the fields to create your journal entry. Make sure your debits equal your credits when you’re done.
Select Save or Save & Close.

If they have a different bank account, then just transfer the amount after the steps above.

It can be challenging to keep track of transactions and use the appropriate account for the HOA company. Therefore, if you are unsure which accounts to use or how to track these transactions, I recommend seeking guidance from an Accountant. In case you don't have one, we can assist you in finding a ProAdvisor.

You can also use the information in this article for future reference: How to run and customize reports in QuickBooks Desktop

Please don't hesitate to reach back out if you have any other questions or concerns about properly recording reserves for a very small HOA company. I'll be here to lend a hand.

View solution in original post

ShaniamarieC · ‎January 21, 2024

Hi there, @spudster.

Allow me to share some insights on how to record reserves properly for a very small HOA company in QuickBooks Desktop.

When you collect dues, they are considered as income for that specific period, and you need to deposit them in a bank account. There's no need to create a separate bank sub-account. You can create an equity account with the reserve balance. That allows you to see how much has been set aside for reserve replacements but still keeps the cash in the savings account.

The proper way to handle reserves is to start by recording all dues from the homeowners as income. Then, make a journal entry that will simultaneously create an expense for the amount put into reserves and allocate those funds to a reserve equity account. That will offset the HOA's income since reserves are not taxable, but it will not have any effect on the bank account.

Here’s what to do to create Journal Entry:

Go to the Company menu and select Make General Journal Entries.
Fill out the fields to create your journal entry. Make sure your debits equal your credits when you’re done.
Select Save or Save & Close.

If they have a different bank account, then just transfer the amount after the steps above.

It can be challenging to keep track of transactions and use the appropriate account for the HOA company. Therefore, if you are unsure which accounts to use or how to track these transactions, I recommend seeking guidance from an Accountant. In case you don't have one, we can assist you in finding a ProAdvisor.

You can also use the information in this article for future reference: How to run and customize reports in QuickBooks Desktop

Please don't hesitate to reach back out if you have any other questions or concerns about properly recording reserves for a very small HOA company. I'll be here to lend a hand.

spudster · ‎January 22, 2024

Currently, I have the Reserves account as a Bank account in the COH.

Can you tell me what accounts I need to create for the Reserves? You mentioned an asset Reserve account and an equity Reserve account. Can you be more specific?

I appreciate your assistance!

Irene R · ‎January 22, 2024

Thank you for coming back to us and posting your concerns in the Community, @spudster.

It's great that you already have your Reserves account set up as a Bank account in QuickBooks Desktop (QBDT). My recommendation is to keep it that way and reach out to your accountant to determine which account to use or track these transactions.

If you need help finding an accountant for your business, let me guide you through a page where you can find one: Find a QuickBooks ProAdvisor.

You can also use this article as your future reference if you want to personalize reports in your QBDT: Customize reports in QuickBooks Desktop.

Hit the Reply button if you have additional questions about your reserve account in the QuickBooks Desktop account. I’m just a post away.

zapkvr · ‎March 18, 2024

I dont want the funds showing up as Owners equity because that isnt what they represent

How do you propose fixing this?

Bob_THI · ‎July 28, 2024

I want to clarify an aspect of your guidance. You say, "make a journal entry that will simultaneously create an expense for the amount put into reserves and allocate those funds to a reserve equity account.". this causes me to report an reserve expense on this year's taxes, even though i won't use the monies until later to cover a reserve expense in the future. this seems to me to double-count reserve expenses. what am i missing?

JaeAnnC · ‎July 28, 2024

Let me explain why creating a journal entry in QuickBooks Desktop (QBDT) to record reserves for your HOA company is necessary, @Bob_THI.

When you make a journal entry to allocate funds to a reserve account, you're not recording an actual expense. Instead, this entry represents a transfer of funds from your operational accounts to a dedicated account set aside for future expenses. That said, this process doesn't lead to a double-counting of expenses.

However, I recommend consulting your accountant to ensure the correct accounts are used. If you don't have access to one, visit our ProAdvisor page to look for a nearby accounting professional.

Moreover, you can run a Balance Sheet report in QBO to calculate how much your business is worth.

Feel free to leave a reply below if you have additional questions about recording reserves. We're always available to offer help. Take care and have a good one.

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How to record Reserves properly for a very small HOA company