[ Blog/News ]

Reading Financial Statements Series© – BASIS OF ACCOUNTING – KNOW YOUR REPORTS

Nov 1, 2021 | Article, Blog, Happenings Sponsor

We introduced you to association balance sheet fund accounting for assessments & expenses as part of a balance sheet in our last blog, which was the sixth in our Reading Financial Statements Series©. In this blog we will explore the basis of accounting and how your financials can be presented in more detail. 


If three different accountants/bookkeepers sat down with the same data & transactions to process, would they prepare financial statements that look exactly the same?


Possibly but probably not.


Assuming each accountant is accurate and consistent, each may not account for transactions or activity in the same way. They may also set up their reports differently.

Assessment Billing & Receipts Example:

Assume assessments of $100 per homeowner are billed to 50 homeowners on the first of November. Forty owners pay in full on the first of the month, ten owners don’t pay until after the end of the month. How does basis of accounting represent the results of the transactions?

Cash Basis:

Records only cash received. Assessment revenue recorded and presented in the income statement totals $4,000 (40 owners X $100). A receivable is not presented on a cash basis balance sheet.

Accrual Basis:

Records activity regardless of cash collection status. Assessment revenue recorded and presented in the income statement totals $5,000 (50 owners X $100).  A receivable of $1,000 (10 owners X $100) is recorded on the balance sheet.

Expense Example:

Assume landscape invoices for November totaling $2,000 are received from the vendor and paid in early December. What is the difference between cash and accrual accounting for November’s landscape expense?

Cash Basis

Using the cash basis, the accountant will record the $2,000 landscape expense in the month the check is cut and sent to the vendor.  The expense will be recorded in December instead of November.

Accrual Basis

Under the accrual basis, the bookkeeper will account for the $2,000 November landscape invoice in November by accruing the expense in accounts payable.

November Income Statement Comparison Using Both Examples:

Cash BasisAccrual Basis
Assessment Revenue:$4,000$5,000
Landscape Expense:$ $(2,000)
Excess Income:$4,000$3,000

You can clearly see the different results presented under the cash and accrual bases of accounting.
Know how your financials are presented so you can continue to make great decisions.

Full Accounting & Knowledge

We believe the full accrual basis of accounting provides associations and readers of financial statements with a more complete and accurate representation.

By Newman CPA

By Newman CPA

Chapter Happenings Sponsor, November 2021

By: Jeremy Newman CPA. Newman Certified Public Accountant PC.

Visit us online: www.hoacpa.com

  • Newman CPA - Ad
  • HUB - HOA and Condo Solutions
  • Alliance Association Bank - Ad
  • SageWater - Simply Pipe Replacement - 888-584-9990 - sagewater.com
  • Pody & McDonald, PLLC - Ad
  • Rafel Law Group
  • Morris Management Banner Ad
  • Condominium Law Group, PLLC - General Counsel & Collection Services - Partners Ken Harer & Valerie Oman - Phone: (206) 633-1520 Website: www.condolaw.net
  • Charter Construction
  • Barker Martin

Follow Us

Search Business Partners Directory

Diamond Sponsors

  • Superior Cleaning & Restoration - Diamond Sponsors
  • TransBlue Logo
  • J2 Building Consultants - Logo
  • SERVPRO Seattle Northwest Logo
  • Community Association Underwriters (CAU) - Diamond Sponsor
  • Columbia Bank - Diamond Sponsor
  • HUB International - Diamond Sponsor
  • Newman Certified Public Accountant, PC - HOA CPA - Logo
  • Charter Construction - Diamond Sponsor
  • Association Reserves WA - Logo
  • Rafel Law Group Logo

Chapter Magazine

December 2021 CA Journal

Nov-Dec 2021 ISSUE
Journal Advertising Partners:

  • Newman CPA
  • CIT Group Inc. - Logo
  • Rafel Law Group PLLC - Logo
  • Yalnes, Inc. - Logo
  • The Copeland Group - Logo
  • Bell-Anderson & Associates - Logo
  • Community Association Underwriters - Logo
  • Ruff Construction - logo
  • J2 Building Consultants - Journal Ad Partner Logo
  • Charter Construction - Logo
  • Popular Association Banking
  • Heritage Bank - Logo
  • Association Reserves WA - Logo
  • SSI Construction
Ryan Swanson - Jo Flannery - Flannery @ryanlaw.com