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Whether preparing an annual budget or a reserve study, it is important to know how much money is available to spend and where the money is saved and recorded. Maintaining separate bank accounts for operating expenses or for reserves activities is both required by some statutes, and highly recommended.

Having a bank account for each type of fund is a great place to start separating each fund’s financial activity. Fund accounting manages and allocates an association’s revenues and expenses, assets, liabilities, and equity.

In a way, it’s like accounting for two entities within one set of financial statements, while keeping the activity and financial position of each separate.

How Does Money Get Into Each Fund?

An association levies and collects assessments from its members. Typically, billing and collections are accounted for in the operating fund. Per budget, associations contribute a portion of billed assessments to the reserves fund each month. Therefore, the operating fund retains monies collected from owners, net of amounts paid to the reserves fund.

The operating fund will present accounts receivable from owners on its balance sheet, together with assessment revenue on its income statement. The contribution of assessments from the operating fund to the reserves fund will be presented as a reduction of assessment income or as a separate line-item expense, and as revenue on the reserves fund’s income statement.

What About Spending?

Each fund pays for its respective expenses by writing checks from either the operating or the reserves bank account. Expenses are recorded in the expense accounts designated for each fund. The operating fund pays and accounts for month-to-month expenses; while the reserves fund typically pays for expenditures for components documented in an association’s reserve study.


Ensure all activity is accounted for in the correct fund. Try not to use one fund to pay for something on behalf of another fund. Account for revenues in the appropriate fund. End Of Article

By Newman CPA

By Newman CPA

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