Account reconciliation is an important part of the accountant’s job. In the case of an Association, that accountant generally doesn’t exist – the books are handled by the property manager. But is everything being reconciled? Everyone knows the bank accounts must be reconciled each month, but what else? All balance sheet accounts require some type of reconciliation.
Cash accounts. These are the most obvious, and require little comment. All cash accounts should be reconciled with the bank statements each month. Any outstanding deposits more than a day or two old should be investigated, as well as any outstanding checks over 30 days old.
Accounts Receivable. Every decent accounting system will produce an AR Aging Summary report, that shows the age of receivables for each owner. To reconcile AR, ensure that detail report balances to the control total shown the balance sheet. Run a few detail ledgers for higher balances, and ensure they balance to the summary report.
Current assets. Consisting of accounts like prepaid insurance, utility deposits, and employee advances, these current assets are generally overlooked. Utility deposits should be supported by a schedule of which utility has the deposit. Employee advances should also be easily reconciled, as advances should not generally last longer than a month. Anything held longer should be carefully reviewed and approved by the board. Prepaid insurance is a little trickier. As insurance is generally paid in advance, it is capitalized and expensed monthly as it is used. For example, if you pay an annual policy in advance for $1200, then each month you would expense $100 of insurance. A schedule of the expenditures and expenses should be maintained that support the balance in prepaid insurance.
Accounts payable. If you maintain your books on an accrual basis, then you have accounts payable. Reconciling this account is as simple as ensuring that what you have in unpaid bills equals the balance on your reports.
Other current payable accounts. Insurance payable is the most common for condominiums. Because the cost of insurance is so high, most condominiums need to finance the cost. Upon signing the finance contract, the full value of the contract should be recorded as a payable, and each subsequent payment reduces it. The balance in the account at any time should be equivalent to the remaining payments. Do you have payroll? Then you have payroll liabilities such as taxes payable. Taxes withheld or accrued on each check (e.g federal withholding, FICA taxes, unemployment taxes) must be recorded as a liability. Most associations would only have to deposit 941 taxes monthly, by the 15th of the following month. Unemployment taxes are due either quarterly or annually. Again, the balance reflected in this account should equal the taxes due as of that point in time.
Loan accounts. The balance sheet loan account should reflect the principle balance due. Each payment made should be allocated between interest and principle. Loan accounts are reconciled just like bank accounts – balancing them to the loan statement.
Security deposits. In some associations, this can be a significant account. For some it may consist of just rental deposits. For these, you should maintain a schedule of all deposits received (including date, check number, and from whom received), and when that deposit is refunded. The funds should be maintained in a separate bank account. The bank account should always equal the liability account.
For those associations that require security deposits (e.g. 6 months’ maintenance equivalent) from each owner, the concept is the same, but the schedule is must larger and more critical. An association could easily have six figures in an account of this type, and every penny needs to be accounted for. Again, the cash account should equal the liability account.
Done monthly, none of this is difficult. However, if you wait until year end, you could have a very large project on your hands! Of course, all reconciliations should be reviewed and approved by the treasurer. If either of you have questions, consult your accountant or auditor for advice.
