Key Terms: Financial Management Flashcards
Acceleration
The collection of all assessments due through the end of the fiscal year. For example, if an owner’s payments on the annual assessment are due monthly and become delinquent at the end of March, all monthly payments through December of that year are due immediately
Accrual basis of accounting
This method records income when it is earned (or assessed to owners) and expenses when they are incurred or acquired.
Assessment
An assessment is the owner’s financial obligation to the community association during a given period of
time—usually one year. It covers the owner’s share of the common expense, also known as “common expense liabilities” in some states.
Assets
include anything owned that has value. Unlike commercial businesses, however, the actual land and
buildings of the community association are not generally shown as an asset
Audit
An examination of the accounting records and procedures of an organization by a CPA for the purpose of verifying the accuracy and completeness of financial records
Bad debt write-off
A bad debt write-off consists of recording an uncollectible debt as an expense that the association
must absorb. This usually requires a resolution of the board.
Balance sheet
A balance sheet is a summary of a community’s financial position at a specific point in time.
Baseline funding
The goal of this funding strategy is to keep the reserve cash balance above zero
Cash basis of accounting
This method records income when it is collected and expenses when they are paid
Certificate of deposit
When a CD is reinvested together with its accumulated interest, the ultimate yield will be
higher than the stated rate of interest
Chapter 7 bankruptcy
Chapter 7 is called straight bankruptcy or liquidation. It involves the prompt conversion of all
the individual’s or corporation’s non-exempt property to cash, and payment of creditors to the extent possible
Chapter 11 bankruptcy
Chapter 11 is called a reorganization because it is designed to allow for an orderly payment
to creditors that enable a corporation to continue
Chapter 13 bankruptcy
Chapter 13 is used to reorganize personal or non-corporate debt. A plan is submitted to a
judge for paying off all or nearly all of the debt over a specified period of time.
Chart of accounts
An organized list of titles, descriptions and assigned numbers of all accounts in an organization’s
general ledger. The assigned number helps you locate the account. The title describes the purpose of the account
Commercial reporting method
Combines operating and reserve activities in the same column, as opposed to fund
reporting, which consists of preparing separate columns for operating, reserve and any special funds
Compilation
A presentation of financial statements by a CPA without the assurance that the information conforms to GAAP
CPA
Certified Public Accountant is an accountant who has passed certain examinations and met statutory and
licensing requirements of a US state
Discretionary budget line items
These are items based on owner, board and committee desires. They are items people would like to have—given their values, lifestyle, and preferred level of service (e.g. social and recreational expenses, and picnic areas)
Engagement letter
When your community hires a CPA, he or she will send an engagement letter. An engagement letter describes the nature of the work to be done, type of report to be prepared, fee for services and time frame for the assignment
Expenses
Expenses are the cost of goods and services used to operate and maintain the community’s property
Fair Debt Collection Practices Act:
Requires that the person who owes a debt receive written notice.
FDIC
Federal Deposit Insurance Corporation, a government agency that guarantees investors’ deposits in member institutions.
FHA
Federal Housing Administration. Regulates and influences such items as the amount of insurance a community association must carry, procedures for financial operations and requirements for the upkeep of property
FHLMC
Federal Home Loan Mortgage Corporation. Buys mortgages from lenders and in doing so require certain types of insurance to be in place.
FICA
Federal Insurance Contributions Act. This act requires employers and employees to make matching
contributions to Social Security. The employer must withhold the employee’s share of the tax from his or her wages or salary
FLSA
Fair Labor Standards Act. This act addresses minimum wage requirements, maximum hours of work and overtime pay
FNMA
Federal National Mortgage Association. Federally established secondary mortgage institution that may set requirements that your community association will have to meet if owners are to participate in their financing programs
Foreclosure
Foreclosure is a legal proceeding filed in court whereby a party with a claim against an owner can claim
ownership of the unit involved in order to recover the money it is owed. The unit is usually auctioned by the court and sold to the highest bidder
Full funding
The goal of this funding strategy is to attain and maintain the reserves at or near 100 percent as called
for on the component inventory
Fund reporting method
Consists of preparing separate columns for operating, reserve, and any special funds
GAAP
Generally Accepted Accounting Principles. Their purpose is to provide uniformity among reports from different organizations
Historical trend budgeting
This method begins with the assumption that existing line items are needed. The amount
of funds allotted to each during the current year is adjusted for expected changes in the coming year
Investment yield
Yield is simply the return received on the investment
Investments
Investments involve the purchase of anything with money value for the purpose of generating additional money over time (e.g. savings accounts, certificates of deposit, U.S. Treasury securities and stocks)
Liabilities
Liabilities consist of what is owed to others or collected in advance (e.g. owner assessments received prior
to the billed month).
Lien
A lien is a legal claim by one party (community association) on the property of another (delinquent owner) to obtain the payment of a debt or the satisfaction of an obligation. Placing a lien on an owner’s property protects the community association’s interests.
Major improvement expenses
Major improvement expenses consist of items that are not necessarily required, but are added to improve the overall welfare, safety or life of the residents—or to enhance the value of the community association as reflected in the resale value of units
Members’ equity
Members’ equity is called the fund balance under the fund method of reporting. It equals the
difference between the community association’s assets and liabilities
Modified cash basis of accounting
This method records income and expenses on a cash basis with selected items
recorded on an accrual basis. Modified cash varies in format depending on the number of items accrued.
Net income
Net income is the amount left after deducting expenses from income.
Net loss
A net loss occurs when expenses are greater than income
Notes to financial statements
The notes accompany the CPA-prepared financial statements. These footnotes provide additional information to help the reader understand the community association’s financial situation
Operating budget
The section of a budget devoted to operating activities includes operating expenses and major
improvement expenses—but not the replacement fund.
Operating expenses
Operating expenses are those items that occur on a regular basis—day to day, week to week, month to month, and year to year
Personal money judgment
A decision by a judge to allow the community association to claim the owner’s personal property to settle a delinquent account
Reconciliation of expenses and revenue
After you draft both your operating and replacement fund budgets for the coming year, you must reconcile your estimated expenses with your community’s anticipated revenue. To reconcile means to bring together after a difference
Replacement fund
The replacement fund consists of funds put aside—in reserve—for the replacement of major
components of a community’s common property.
Representation letter
A letter from the CPA that states that the information the community association provides is true to the best of its knowledge
Reserve cash flow statement
Shows the amount to be funded and the amount to be expended from the
replacement fund over a given period of time.
Reserve study
A reserve study is a budget planning tool that considers the current status of the replacement fund
and determines a stable and equitable funding plan to offset the anticipated future major common area expenditures
Revenue
Revenue consists of the collective items or amounts of income which, in the case of a community
association, are appropriated for public expenses
Statement of cash flows
This is a summary of the flow of funds into and out of the community association.
Summaries are prepared for normal operations, investment activities, and any borrowing activities.
Statement of income and expense
This report records the community association’s financial transactions during a given period of time—generally for a given month plus the fiscal year to date. It is a way to keep track of the community’s financial activity
Threshold funding
This method is based on the baseline-funding concept. The minimum reserve cash balance in
threshold funding is set at a predetermined dollar amount
Treasury bills
Treasury bills are short-term instruments that mature in 13, 26, or 52 week periods. They are issued in
minimum denominations of $10,000. Anything larger must be in $5,000 increments. As soon as one is purchased, the buyer receives the promised earnings. Then, when the bill matures, the buyer receives the face value (value indicated
in the wording of the T-bill)
Treasury bonds
Treasury notes mature in one to 10 years. Treasury bonds mature in more than 10 years. Both notes
and bonds are issued in denominations from $1,000 to $100,000. They are also interest-bearing with interest paid every six months. When the note or bond matures, the buyer receives the full face value
Zero-based budgeting
With this method, all line items are set to zero and the amount of funds allotted to each must
be justified
