Accounting for Association Revenue: Member Assessments

The annual budget is generally the basis for establishing assessments to fund operations, reserves and other funds such as insurance 

applied against reserve fund non-contract income such as investment interest income. Reserve expenses in excess of interest income will be charged against reserve fund  assessment income in the current period.

Accounting/presentation change:

Operating Fund Assessments

An association’s performance obligation for operating assessments is the maintenance and management of common area

property. Operating assessment revenue recognition will generally not change from existing practice since operating assessments and expenses generally occur on a periodic basis   reporting period.

Accounting/Presentation Change:

Bad debts should be recorded as a charge below operating assessments (revenue section) in an association’s statement of revenues and expenses.

Special Assessments

Under previous guidance, special assessment revenue was typically  the special assessment was levied were

Reserves Fund Assessments

Under the new guidance, the performance obligation for reserves assessments is met when the reserve

expenditure is incurred; therefore, reserves assessment  Under the new guidance unspent reserve funds are generally presented as a liability (Contract Liability [Assessments received in advance – replacement fund]), on an association’s balance sheet, which is a change from the existing practice of accounting for reserves fund balances in the equity section. The change will generally result in retrospective presentation of the opening reserves fund balance in the current year as a Contract Liability (assessments received in advance  association’s reserves fund.

 

incurred. Similarly, FASB ASC 606 requires associations to   accounting treatment for an association’s reserves fund, special assessment fund balances should be accounted for as Contract Liabilities – (Assessments received in advance – special assessment fund) until expenses have been incurred. Previous practice had generally been to present unspent special assessment revenue as deferred income.

Special assessments are levied for various purposes, which will determine the required recognition of special assessment revenue, as follows:   »  period the special assessment is levied.

 To repay a loan »  repayments are made

  »  the expenditure is incurred (performance obligation completed).

Accounting/presentation change: 

Continued on Page 22  21

Reserves excess will generally be reported in Contract Liabilities (assessments received in advance – replacement fund) on an association’s balance sheet. Reserves  to interest income and other non-contract income).

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