HOA Reserves on the Balance Sheet

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.

@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!!

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.

@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.    

@Rainflurry 

I really appreciate your expertise here. I've been pondering this for a few years. The first time I do a JE and debit the Reserve expense account (was just a type=bank, savings on the balance sheet, shown as income) to credit a Reserve equity account it will show a VERY inflated number, since it is many yrs of reserves. Do you have a suggestion? I can see the benefit of doing this each year, with the 20% of dues that needs to be set aside in reserves according to the by-laws, but the first entry seems like it is going to throw everything on the P&L! Especially when I need to report to the whole community.

@TreasurerofSSAI 

"The first time I do a JE and debit the Reserve expense account (was just a type=bank, savings on the balance sheet, shown as income) to credit a Reserve equity account it will show a VERY inflated number, since it is many yrs of reserves. Do you have a suggestion?"

Are you saying that you have a 'Reserve Expense' bank account on your balance sheet that has many years of reserves?  Is this "bank" account in addition to the HOA's actual checking/savings account?  If so, how did that balance get there if the funds were also deposited into the HOA's actual bank account?  

@Rainflurry 

Yes, I've kept separate bank accounts for the Reserve funds. It started out as a Money Market account, but now we keep a few, as we have more in reserves & operating combined than the FDIC limit, so we've opened another account. A few times a year, I transfer to a reserve account to keep the 20% of incoming dues requirement of the bylaws.

@Rainflurry 

Maybe I misunderstood your question... the original reserve accounts were on the balance sheet as bank account, not as an expense. When I create the reserve expense account that you recommended, the JE puts it all as a single reserve expense in the current year.

@TreasurerofSSAI 

Since you never reported the reserve expense in previous years, your retained earnings (R/E) is overstated by the amount that should have been expensed.  So, for the previous years’ expenses, create a JE that debits R/E and credits your Replacement Reserve equity account.  That will keep the previous year’s Replacement Reserve Expense off your P&L but will properly increase the Replacement Reserve equity account.  

Then, for the current year, create a JE that debits your Replacement Reserve Expense account and credits Replacement Reserve equity.  In the future, it’s best to make a monthly JE for the expense and equity.  

Thank you!!!!!