There are several components of a financial statement for a condominium or a cooperative. Through a series of articles, we wish to offer a basic understanding and, where helpful, benchmarks for you to consider versus your specific property. These articles are in no way intended to provide a comprehensive analysis, rather, more of a resource to provide a basic understanding of the component, and answer certain questions that you may have about specific line items in order to expand the value of the document that you receive from your Board.
These components include
- Report letter which details the extent of procedures that were applied, any limitations on those procedures and conclusions reached by the accounting professional.
- Balance Sheet which presents a snapshot of the financial position of the property
- Income State which presents the revenues and expenses for the period
- Cash Flows which presents the sources and uses of cash for the period
- Notes which presents required and requested disclosures
Each of the five common exhibits will be presented as separate articles which will also attempt to explain when and where another exhibit may interact or affect the component being showcased. The articles will have a summary or explanations of the most basic components as well as a discussion of more details for each broad component. The article on required disclosures that are included as notes to the financial statements, will attempt to offer insight into the most common disclosures for these properties and unfortunately may not include each financial statement note that is included in your property’s annual report. As certain supplementary information is often included with these financial statements, the most common sections are all showcased together into one article. We urge you to evaluate all of the articles to fully understand every important aspect of the finances of your property’s financial statements. We also make ourselves available to attempt to assist with specific questions that you may have that are not covered by the articles by emailing us at info@czarbeer.com.
The income statement transverses the entire year. In the most basic terms, its attempting to show how much net profit there is for the year. However, for these entities a result not close to breakeven is generally not a good thing. That is, lenders don’t want to see recurring losses and prospective buyers might believe that monthly charges are inadequate to cover costs. Worse, a net profit can be interpreted by owners saying that they were over charged in their monthly charges as expenses are less than what they were charged. Always best to see a roughly breakeven as the bottom line, except…..
Generally Accepted Accounting principles for Coop accounting makes this almost impossible because assessments for capital are considered revenue. However, where the money is spent is not an expense, its an asset for improving the real property owned by the Cooperative. Thus, capital assessments for cooperatives seem to create a lot of income, which for you as property manager or shareholder is gone, without a deduction for an expense. Further, a totally unimportant amount to the operation of a cooperative, Depreciation is recorded as an expense. But since the Board didn’t wish to bill shareholders (monthly maintenance) for anything more than what is needed to fund expenses, nothing is budgeted for depreciation. We can tell you back out this and add that, but the best solution is when the accountant includes a “supplemental schedule” of financial results to the operating budget. If they haven’t been, our guess is you would more easily review a cooperative financial statement if it was.
Returning to the income statement, Condominiums can prepare this statement on the fund accounting approach, which is somewhat different from more general Corporation or business accounting, and not allowed for Cooperatives. This fund style approach, though, does bode well in our presentation here as it breaks up the revenue and expenses into three categories: operating, other and capital or designated fund. Thus, capital assessments are revenue and capital projects, improvements to common property, owned by the unit owners individually, are the offsetting expenses. Thus, when an assessment is made to fund a project, these revenues and expense net out on a Condominium Financial Statement. There are caveats concerning how assessments are reflected as revenue for generally accepted accounting principles.
Whether you are a business, individual, or non-profit – we will outline specific steps you can take to minimize taxes, maximize loan eligibility, or enhance the value of your property. With one call or email we will provide you with a professional, complimentary financial Statement evaluation – no obligation. Just visit Czarbeer.com/offer or contact us at info@czarbeer.com, or call (212) 397-2970 and we will be happy to help you and answer your questions.