In case you are a property supervisor or board member, there’s a superb likelihood you fall into 1 of two classes:
- I’m captivated with accounting and precisely monitoring bills and property
- Simply the considered sustaining a monetary database makes my head damage
For those who fall beneath class 2, this text is for you. We’ll clarify the distinction between accounts payable and accounts receivable, and why they each matter to condos/HOAs.
What’s property administration accounting?
Accounts payable vs. accounts receivable
Recording accounts payable and accounts receivable
What’s property administration accounting?
Property administration accounting is the documentation of monetary exercise for the aim of reporting. It’s an important a part of managing any company or affiliation. Protecting a report of your affiliation’s money circulate is the one manner your crew will be capable to know the place the neighborhood stands financially.
Accounting for property administration is comparatively just like accounting for every other enterprise. Nonetheless, since condos and HOAs are non-profit organizations, managers shouldn’t be involved about having extra income than bills. The neighborhood must be spending/saving nearly as a lot because it’s bringing in.
Along with conserving correct monetary information for their very own pursuits, condos and HOAs should use them to file taxes. That’s one massive purpose why communities want a standardized and arranged system for monitoring the place their cash is generated and what they spend it on.
Each accounts payable and accounts receivable are vital components of property administration accounting. They measure the cash leaving the company/affiliation, and the cash coming in. Each are recorded locally’s normal ledger; one as a legal responsibility account and the opposite as an asset account.
Accounts payable vs. accounts receivable
Accounts payable (AP) is cash owed by a condominium/HOA to a provider, vendor or creditor. Accounts receivable (AR) are funds that the condominium/HOA expects to obtain from homeowners and residents.
Beneath is a straightforward chart as an instance the distinction between the 2.
| Accounts Payable | Accounts Receivable |
| Cash to be disbursed | Cash to be obtained |
| Recorded as a present legal responsibility on a steadiness sheet | Recorded as a present asset on a steadiness sheet |
| Bill despatched to condominium/HOA | Bill despatched to proprietor/resident |
| Acknowledged as a legal responsibility till paid | Acknowledged as earnings except written off |
Mismanagement of both account can adversely have an effect on the steadiness and well-being of the neighborhood. From a course of perspective, the recording of the 2 accounts wants to stay strictly separate. Specialists would advocate having totally different groups handle the 2 accounts as a way to scale back the chance of fraud.
Accounts payable
It typically helps to consider accounts payable as a type of credit score prolonged by a vendor or provider, with a service being supplied first and fee collected after the job is completed. AP objects seem as a legal responsibility on the company’s/affiliation’s steadiness sheet.
AP bills are usually documented upon receipt of an bill, based mostly on the fee phrases that the events agreed to earlier than the seller began the service or job requested by the condominium/HOA.
Days payable excellent
A key metric condos/HOAs might take into account monitoring is days payable excellent (DPO). This metric reveals the typical variety of days it takes the company/affiliation to make funds to distributors, and signifies how the condominium/HOA is managing money circulate and vendor relationships.
Accounts receivable
Any cash owed to the company/affiliation is documented beneath accounts receivable. Normally, this cash comes from residents paying assessments, dues or charges. Vendor credit and late charges are additionally logged beneath AR. The amount of cash owed to the condominium/HOA seems as an asset on the affiliation’s steadiness sheet.
Some associations will mark funds as 30, 60, and 90+ days late. This fashion, the individuals taking care of AR know which excellent balances require severe consideration, and which of them are much less pressing.
With AR software program, it’s potential to schedule computerized notices if residents fail to make a fee on time. The discover is delivered by way of electronic mail in order that the problem might be addressed as rapidly as potential. It additionally reduces some handbook work for the individuals in control of gathering late funds.
Accounts receivable turnover ratio
In relation to measuring AR metrics, monitoring the receivable turnover ratio is an efficient place to start out. This can assist condos/HOAs perceive how effectively and rapidly the neighborhood is changing its account receivables into money inside a sure timeframe.
Present ratio
Generally known as working capital, it is a measure of liquidity. This determines how succesful the condominium/HOA is of paying one-time or short-term prices with the accessible money (or different liquid property that may be transformed into money) inside a 12 months. If the neighborhood at all times has much less cash than it must cowl bills, then that may be a signal that it must both work on getting extra residents to pay on time, or have a look at the place it could enhance the finances.
Recording accounts payable and accounts receivable
These accountable for AP and AR might use 1 of three recording strategies.
Accrual accounting
Accrual accounting requires the condominium/HOA to report bills as quickly as they’re incurred, and revenues when they’re earned. The Accrual Foundation is the one methodology that complies with the Typically Accepted Accounting Rules (GAAP). Subsequently, it’s the one methodology communities can use for official recording and reporting.
Money-basis accounting
Utilizing this methodology, condos/HOAs solely report bills as soon as cash has been taken out of the neighborhood’s checking account. Revenues are solely recorded when the money has are available.
Money-basis accounting doesn’t conform with GAAP, which means it can’t be used when getting ready official monetary statements. Nonetheless, it could nonetheless be used for interim reporting.
Modified accrual accounting
The Modified Accrual Foundation (typically known as the Modified Money Foundation) is a mixture of the primary two strategies. This follow makes use of the Accrual Foundation for documenting revenues, and the Money Foundation for logging bills. Like cash-basis accounting, this methodology doesn’t conform with GAAP. For that reason, it could solely be used for interim or unofficial reporting.
In case you are ever doubtful about your record-keeping processes, don’t hesitate to solicit assist from knowledgeable, licensed accountant.
Conclusion
Accounts payable and accounts receivable are two essential elements of property administration accounting. They assist boards and managers hold monitor of cash coming and cash going out.
Since condos/HOAs are non-profit organizations, there shouldn’t be a heavy concentrate on producing considerably extra income than what’s being spent and put away in financial savings. Many communities are happy to interrupt even.
AP and AR software program could make monetary documentation a lot simpler for condominium and HOA communities. Not solely does it digitize information, however it hastens processes and retains neighborhood information safer.
Software program can even assist to cut back human error, which in flip creates much less work for workers and helps guarantee correct funds are despatched and obtained on time.