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Reserve fund accounting for small (non-profit) condo association

Help!  I am the new treasurer and I need answers for the following questions regarding reserve fund accounting for a small non-profit condo association.

Background:  Currently have a regular checking account for operations and one for reserve funds.  Do not know what other accounts to establish.  Need help with the following:

1.  Each month would like to take 10% of the HOA fees and move to the reserve fund for future needs.  I did that with Transfer funds from regular checking to the reserve savings account.  Are there any other entries that need to be made?....i.e. do I need to be using a long-term liability account called Reserve Fund and if so what are the journal entries.

2.  When a new condo unit is sold, the new owner pays 2 months of HOA fees to the reserve fund (this amount is not refundable and is only paid by new owners...not on a resale).  I know the debit is to the reserve savings account, what is the credit to?

3.  If we were to have a special assessment for a major repair (i.e. fix the road, etc.), what are the journal entries.

Please help!  I have never worked with a reserve account and do not know the journal entries for it.  Do we need a long-term liability account called Reserve Fund and if so what goes into this account?  Is there an equity account that needs to be used?  I have read a number of previous postings on this issue and am still confused.

Thanks!

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Best answer 12-10-2018

Accepted Solutions
Established Community Backer ***

I support a lot of NFP and governmental entities for Fund...

I support a lot of NFP and governmental entities for Fund accounting in QB. Let me try:

"Currently have a regular checking account for operations and one for reserve funds.  Do not know what other accounts to establish.  Need help with the following:"

"1.  Each month would like to take 10% of the HOA fees and move to the reserve fund for future needs.  I did that with Transfer funds from regular checking to the reserve savings account."

This is in Real Life; you Reserved funds. If you are not Assessing them as Restricted, then this is fine. They were regular income for you but the Board has decided to Reserve them. Otherwise, if you Assessed them as Restricted, the Income should also show as Restricted.

"Are there any other entries that need to be made?....i.e. do I need to be using a long-term liability account called Reserve Fund and if so what are the journal entries."

If these were income when you got them, they cannot Also be Liability now. Liability would be, for example, a Special Assessment used to repair a Pool that is not considered Income.

"2.  When a new condo unit is sold, the new owner pays 2 months of HOA fees to the reserve fund (this amount is not refundable and is only paid by new owners...not on a resale).  I know the debit is to the reserve savings account, what is the credit to?"

Neither. Never use Debits-Credits and never use JE for anything where Names need to be included. This is a Customer Activity. It is Dues Income for you. You should create a different Item, so that Regular Dues and "New Owner Dues" are segregated for reporting needs.

Perhaps it helps to point out that the Destination Bank is not the same as the Why they are charged and paid. You assessed them Dues Income but it is going to the Reserve Bank. It still is Income for you and from Dues.

"3.  If we were to have a special assessment for a major repair (i.e. fix the road, etc.), what are the journal entries."

Again, No JE. This would be an Item linked to an account used on the Invoices or sales receipts or as Statement Charges, for those Owners as Customer Names. This might be Restricted Income, or Liability. If it is not refundable (let's pretend the project falls through) then it is Income.

"Please help!  I have never worked with a reserve account and do not know the journal entries for it."

Please stop trying to use JE for anything to do with the Owner Names. That is not how to correctly use QB at all. You hardly ever use JE for this operation. You need Names on transactions.

"Do we need a long-term liability account called Reserve Fund and if so what goes into this account?"

You only NEED what applies. If you got funds from an entity for some specific purposes (say, underground storage tank removal) or carried forward funds that are Reserves, such as special assessments, then Maybe.

"Is there an equity account that needs to be used?"

It might be Liability or Equity or Both; it might be various things for various amounts and reasons. You can rebalance Equity to show Available funds (Unrestricted Net Assets or Operating Fund Balance) separately from Restricted or Reserved funds.

"I have read a number of previous postings on this issue and am still confused."

The best reference for this is the Tax Form your entity files. We don't know if it s a 990 or 1120H, for instance.

Also, I recommend the book Running QB for NFP by Kathy Ivens.

View solution in original post

9 Comments
Established Community Backer ***

I support a lot of NFP and governmental entities for Fund...

I support a lot of NFP and governmental entities for Fund accounting in QB. Let me try:

"Currently have a regular checking account for operations and one for reserve funds.  Do not know what other accounts to establish.  Need help with the following:"

"1.  Each month would like to take 10% of the HOA fees and move to the reserve fund for future needs.  I did that with Transfer funds from regular checking to the reserve savings account."

This is in Real Life; you Reserved funds. If you are not Assessing them as Restricted, then this is fine. They were regular income for you but the Board has decided to Reserve them. Otherwise, if you Assessed them as Restricted, the Income should also show as Restricted.

"Are there any other entries that need to be made?....i.e. do I need to be using a long-term liability account called Reserve Fund and if so what are the journal entries."

If these were income when you got them, they cannot Also be Liability now. Liability would be, for example, a Special Assessment used to repair a Pool that is not considered Income.

"2.  When a new condo unit is sold, the new owner pays 2 months of HOA fees to the reserve fund (this amount is not refundable and is only paid by new owners...not on a resale).  I know the debit is to the reserve savings account, what is the credit to?"

Neither. Never use Debits-Credits and never use JE for anything where Names need to be included. This is a Customer Activity. It is Dues Income for you. You should create a different Item, so that Regular Dues and "New Owner Dues" are segregated for reporting needs.

Perhaps it helps to point out that the Destination Bank is not the same as the Why they are charged and paid. You assessed them Dues Income but it is going to the Reserve Bank. It still is Income for you and from Dues.

"3.  If we were to have a special assessment for a major repair (i.e. fix the road, etc.), what are the journal entries."

Again, No JE. This would be an Item linked to an account used on the Invoices or sales receipts or as Statement Charges, for those Owners as Customer Names. This might be Restricted Income, or Liability. If it is not refundable (let's pretend the project falls through) then it is Income.

"Please help!  I have never worked with a reserve account and do not know the journal entries for it."

Please stop trying to use JE for anything to do with the Owner Names. That is not how to correctly use QB at all. You hardly ever use JE for this operation. You need Names on transactions.

"Do we need a long-term liability account called Reserve Fund and if so what goes into this account?"

You only NEED what applies. If you got funds from an entity for some specific purposes (say, underground storage tank removal) or carried forward funds that are Reserves, such as special assessments, then Maybe.

"Is there an equity account that needs to be used?"

It might be Liability or Equity or Both; it might be various things for various amounts and reasons. You can rebalance Equity to show Available funds (Unrestricted Net Assets or Operating Fund Balance) separately from Restricted or Reserved funds.

"I have read a number of previous postings on this issue and am still confused."

The best reference for this is the Tax Form your entity files. We don't know if it s a 990 or 1120H, for instance.

Also, I recommend the book Running QB for NFP by Kathy Ivens.

View solution in original post

Not applicable

Thanks for the info. We do file an 1120H for tax purpose...

Thanks for the info.

We do file an 1120H for tax purposes.

I am not using journal entries to do the above.  I am using the customer center to create invoices and record payments.  However, just trying to think of the accounts that will be debited/credited.

Let me just ask if I am understanding everything correctly.

For Point # 1 - Transferring funds from checking to reserve savings is all I need to do.

For Point # 2 - When the invoice is created in the customer center, the "debit" will be to Accounts Receivable.  For the "credit" side, I need to create a new income account (different from the Condominium Dues income account for normal HOA fees) called "New Owner Dues".  Using the Customer center window, when payment is received for the customer, the debit will be to the Reserve savings account and the credit will be A/R.  At the end of the year, this new owner dues account will be closed out as it is an income account.  Since these funds are nonrefundable, I do not have to keep track of them over the years....correct?

For Point #3 - Once again in the customer center an invoice will be created for each customer with a debit to A/R and a credit to a Restricted Income account or a liability account.  In the customer window, when the payment for the special assessment is received, the debit will go to a restricted funds account that is a subaccount of the reserve fund and the credit will go to A/R.

Did I understand this correctly?  If so, thanks for the help as my research through the many postings in QB has been confusing.  In setting up QB, everything else is going ok except for this one sticking point.  Thank you!
Not applicable

I am a degreed accountant, though I've never worked in pu...

I am a degreed accountant, though I've never worked in public practice.  As a user of Quickbooks only for my own small business, where I like to "Reserve" some assets for capital expenditures, I am using Sub-accounts as a way of tracking funds. So I have:  "Checking"  ,  "Checking:RoofReserve"  ,  "Checking:Painting"  , etc.
I can reconcile the account at the Checking account level based on all cash transactions, but printing reports, the sub-accounts break out my reserved funds. I can either allocate a portion of cash receipts (as would be done in a condo association with regular monthly assessments), or I can create a monthly journal entry to move some of my cash into a Reserved sub-account.  When I have a capital expenditure for the roof, I am still spending the money from the checking account, but I pull the cash from the Roofing sub-account.
This only works well with a single account. If there are multiple physical accounts, such as a savings, plus a checking account, I would have to create sub-accounts in each physical account, and if I move funds between physical accounts, I have to remember to make the transfer from the appropriate account level, but for my small business needs, and with interest rates at zero, the sub-account method serves my needs.

From the description, it sounds like Somerset Farm is using a separate physical account for their reserves. If this is the case, the monthly assessments deposit could be split between the general checking and the physically separate reserve savings. For asset tracking purposes, the reserve savings account would be listed as reserved assets for capital projects. Easy enough to position the Savings account offset from other assets and label it as reserved funds. A specifically identified capital project such as road repair could still be accomplished with a sub-account. If there is sufficient cash in the physical account to cover the capital project, the sub-account could be allowed to go negative and be replenished by a special assessment taken over a few months. At the end of the special assessment payments, the sub-account would be reconciled to a zero balance.

The sub-account approach has no impact on the tax accounting for the association or business.
Established Community Backer ***

" However, just trying to think of the accounts that will...

" However, just trying to think of the accounts that will be debited/credited."

This is controlled by your Setup of your Items and where you use them. Open any transaction in QB and use Ctl Y to see it as a journal view, which is always there, behind the scenes.

"For Point # 1 - Transferring funds from checking to reserve savings is all I need to do."

You might also want to rebalance Equity. I don't for the Government entity I manage, but you might. Some of those I support WILL do this. A "single-purpose" entity has fewer requirements.


"For Point # 2 - When the invoice is created in the customer center, the "debit" will be to Accounts Receivable."

Anything entered on a Sales form will Credit the account linked to that item and Debit AR. Payments will Debit Bank (or UF) and Credit AR, clearing it.

"For the "credit" side, I need to create a new income account (different from the Condominium Dues income account for normal HOA fees) called "New Owner Dues"."

Let's keep in mind we have Two Things going on in QB: Items and Accounts. Using Items well means you don't need to micro-manage the Chart of Accounts. For example, I sell Water, using Items:
Base Rate (flat fee)
Second Tier ($ per 1,000 gallons)
Third Tier (higher $ per 1,000 gallons)

ALL of these link to ONE income account = Water Sales

You decide the clarity you need for your reporting purposes. Always reference the tax form, since you cannot report what you did not track. Accounts = financials. Items = Operations. Sale By item, Sales by Customer Summary with Columns by Item Type, etc.

"Using the Customer center window, when payment is received for the customer, the debit will be to the Reserve savings account"

IF you process the payment with the selection as "deposit to Savings" then, yes. Or, you flow these to Undeposited Funds, and later, you select Which are deposited to Checking and Which are deposited to Savings. Or, you simply deposit everything to Checking first, which is what I am mandated to do, and then you Transfer funds as needed to meet board and budget requirements.

"and the credit will be A/R.  At the end of the year, this new owner dues account will be closed out as it is an income account."

Well, QB "closes" Income and expense to Equity as "retained earnings" which I typically Rename as Unrestricted Net Fund Assets. This is why and how Rebalancing works; you move from/to Unrestricted, as you get and/or use Restricted, and at year end, QB closes everything to Unrestricted. That is in Kathy's book.

"Since these funds are nonrefundable, I do not have to keep track of them over the years....correct?"

Nonrefundable = income when you get it. Not a security deposit or prepaid against future years.

"For Point #3 - Once again in the customer center an invoice will be created for each customer with a debit to A/R and a credit to a Restricted Income account or a liability account."

Let's state this as "Using the appropriate Item."

"In the customer window, when the payment for the special assessment is received, the debit will go to a restricted funds account "

Let's state the Destination for the Payment (not "customer window" but Receive Payment screen)...

"that is a subaccount of the reserve fund"

Oh, you want to break out the Savings account?


"and the credit will go to A/R."

Because that is the function of Receive Payment.

"Did I understand this correctly?"

Remember, you are using a Program with an Interface = Set of Tools. It really helps to stop thinking Debit-Credit and think Menu Option, Screen, Form, function, etc. Use the tools. You don't need to clear the forest and cut your own lumber; just start Building your house.

"If so, thanks for the help as my research through the many postings in QB has been confusing.  In setting up QB, everything else is going ok except for this one sticking point.  Thank you!"

If you are going to segregate one real Bank account into different subaccounts, you need to know a few things:
The Parent level is NEVER used for transactions and only for Reconciliation. Everything else goes in and out of the specific Subaccount level.

It looks like this:
Savings <== Parent Level, description = DO NOT USE
subaccount "Operating funds"
subaccount "Restricted Funds"
Established Community Backer ***

Additional note: I deposit everything to Checking. I run...

Additional note:

I deposit everything to Checking. I run a Sales report on the Special Assessment, Cash Basis, and that is the amount I transfer from Operating to Restricted Bank. That is because my Invoices list Multiple items, only some of which are considered a Restricted charge item. I have two type of restrictions (board and bond). And we are a Full Accrual entity so I only want to deposit Cash Value Received for Special Assessments, not based on Accrual sales (charges).

Established Community Backer ***

"I am using Sub-accounts as a way of tracking funds." Yes...

"I am using Sub-accounts as a way of tracking funds."

Yes, I describe how to Subaccount Banking for this purpose.

"Checking:RoofReserve"

As you know, Assets = Liab + Equity. For reporting properly, Reserved Funds also are seen as Reserved or Restricted Net Assets (Equity) or "Fund Balance" for a NFP Entity.

"I can reconcile the account at the Checking account level based on all cash transactions"

That is correct. I like to put a description on Parent account levels as Do Not Use; nothing is posted to the Parent and it is used only for reconciliation.

"I can either allocate a portion of cash receipts (as would be done in a condo association with regular monthly assessments),"

No, that is not correct. The Charge Items are already going to allocate; the Funds are banking at that point and need to match the Charge Items.

This often is matched by using Class Tracking. That way, P&L by Class and BS by Class will, or need to, match.

"When I have a capital expenditure for the roof, I am still spending the money from the checking account, but I pull the cash from the Roofing sub-account."

Yes, that applies to what I described above.

"This only works well with a single account. If there are multiple physical accounts, such as a savings, plus a checking account, I would have to create sub-accounts in each physical account"

Yes, that is what I do and what the Town Clerks do, who I support. We have multiple funding accounts.

"but for my small business needs, and with interest rates at zero, the sub-account method serves my needs."

When we earn interest on Restricted Funds, that has to be deposited to that specific subaccount. And releasing Restricted funds into Reserved is done by Board or Council approvals.

"From the description, it sounds like Somerset Farm is using a separate physical account for their reserves."

That often is a Requirement, for Trust and Reserves, for the entity type.

"If this is the case, the monthly assessments deposit could be split between the general checking and the physically separate reserve savings."

Assessments and Operational charges would be tracked separately.

"For asset tracking purposes, the reserve savings account would be listed as reserved assets for capital projects. Easy enough to position the Savings account offset from other assets and label it as reserved funds. A specifically identified capital project such as road repair could still be accomplished with a sub-account. If there is sufficient cash in the physical account to cover the capital project, the sub-account could be allowed to go negative and be replenished by a special assessment taken over a few months."

No, you are not allowed to run Negative and collect later. You need to allocate Operational Funds, in this case. I describe this to the town clerks as "Subaccounts are like roommates. One cannot cover the costs of the other." You see this in the news: "Town X expended Restricted Funds for General Needs" Or whatever.

"At the end of the special assessment payments, the sub-account would be reconciled to a zero balance."

Assessments are often held as reserve against future projects. Many places have a requirement for HOA associations, for x% against Reserves.

"The sub-account approach has no impact on the tax accounting for the association or business."

Well, it helps to remember that Condo Associations can fall under Different tax codes, too. There is not only One type for HOA. When you work with QB to comply with GASB, FASB, 501(c), OMB Circular whatever, things are a bit complex and beyond this Internet forum.

Community Explorer **

Reserve Funds for HOA Capital Improvement Expenditures

What I'm hearing is, there's no easy way to do this.  

 

I'm not an accountant.  I just want to be able to report to the Board how much is in the Reserve Fund so when it's time later this year to repave our roads, we know how many we can repave,  AND how much to set aside beyond the Special Assessment we collect yearly to replenish the reserve fund for the next round of repaving, or replacing a fence or a playset. 

 

Why is this so hard?  Is the CIF Reserve an Equity account? 

When I pay the bill for repaving, do I first do a Reserve Transfer from the CIF Reserve Fund back to the checking account so I can initiate a check?

 

 

 

 

Not applicable

Re: Reserve Funds for HOA Capital Improvement Expenditures

Did you resolve this problem?  I have two bank accounts (for HOA nonprofit):  Operating Expenses & Reserve Funds.

When paying a vendor for a Reserve Fund transaction, I have to transfer money from the Reserve Funds to the Operating Account in order to write a check.

How do I post transactions so that it does not reflect on the Profit & Loss Report?  The transfer is not income, because it was already noted as income in a previous year through dues collection.

The check to vendor is not an expense to the Operating Expenses account.  This is merely a pass-through payment.

I have not been able to determine how to post for this type of reimbursable expense.

Not applicable

Re: Reserve Funds for HOA Capital Improvement Expenditures

Did you resolve this problem?  I have two bank accounts (for HOA nonprofit):  Operating Expenses & Reserve Funds.

When paying a vendor for a Reserve Fund transaction, I have to transfer money from the Reserve Funds to the Operating Account in order to write a check.

How do I post transactions so that it does not reflect on the Profit & Loss Report?  The transfer is not income, because it was already noted as income in a previous year through dues collection.

The check to vendor is not an expense to the Operating Expenses account.  This is merely a pass-through payment.

I have not been able to determine how to post for this type of reimbursable expense.

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