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Your Association’s Financial H


Statements: Knowing the Basis of Accounting


— By Jeremy Newman, CPA —


omeowners and boards receive association financial statements at various times during


the year. For many, reading and understanding financial reports can be challenging. Understanding the basis of accounting used to prepare financial reports is a vital first step to understanding what you are looking at.


Understanding if revenues are recorded only if earned in the current period, usually a month or a year, or if the revenues include receipts of amounts assessed for a previous or future period; and if expenses presented are for the current period only, or if they are for past or future periods is incredibly important.


What if the financial statements show budgeted assessments of $200,000 for 2020, and actuals for 2020 are $260,000? What does that mean?


What if budgeted expenses for the year total $150,000 but actual is only $100,000? What does that mean?


16 Community Associations Journal | July-August 2021


Understanding your association’s basis of accounting is necessary to provide financial statement readers with a foundation of basic and useful knowledge.


Generally Accepted Accounting Principles


You may have heard the term Generally Accepted Accounting Principles (GAAP). The accrual method of accounting is the only GAAP-basis of accounting.


Other bases of accounting, known as “Other Comprehensive Bases of Accounting,” can create more complexity and lack of clarity and useful reporting.


The accrual basis is the only basis approved by the accounting standards setters. Other bases of accounting, known as “Other Comprehensive Bases of Accounting”, can create more complexity and lack of clarity and useful reporting. So, what are the choices? Some examples:


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