Who is excited for year end?!

If you are a Czarnowski & Beer client, you will be hearing a lot from over the next few months as year-end reports will be prepared and financial statements will be popping up left and right. To commemorate this season we thought it would be a good idea to give everyone some financial statement knowledge so you can fully understand the reports you receive, thus making them that much more valuable to all those that are reviewing.

Financial statement knowledge is a vast topic, but in the interest of time (and not wanting to bore you to tears!) we have highlighted a few topics that we think are essential to understanding this essential area. We want you to keep in mind that we’re only scratching the surface of financial statement knowledge, so if you have any questions, please don’t hesitate to send us an email.

The most common question we get regarding financial statements is centered around what makes these financials different from the usual reports clients get from management. This question, although sometimes annoying, is a great one because it shows us that the board is reviewing and analyzing the documents that we provided them.

In our opinion, it would be nice to have that question come from management, but that is oftentimes not the case which is why we want to give you the tools today to be able to understand the items on your financial statement and how to figure out how to answer questions regarding them on your own.

To successfully get this done we will share a little knowledge into what makes up your financials.

Receivables – this valuable item lets you better understand things like who isn’t paying, whether management is taking an allowance, and if you will be collecting any money. When looking at this section of your financial statement it is important to consider if you are small building that is heavy reliant on those funds (meaning that if one person is delinquent your will have to cover them) or if you are a bigger building that can absorb the receivables.

Although it is okay if you don’t see these types of accounts, if you don’t see differentiation with your accounts and everything is lumped together you might question if items are being budgeted for. In cases like this you may want to ask yourself questions like “is there enough in the budget for real estate taxes or insurance” and “are bills paid for as they come up without designating separate buckets for each item,” both of which are valid.

With operating accounts, you really shouldn’t see any major differences between the management report and audited financials, if you do it’s because there are items on the bank reconciliation that need to be recorded by the auditor.

Reserve accounts are notorious for having differences. This is because situations often arise like December interest not being recorded and the board-controlled account not being controlled by management so it’s booked to transfers.

There are a lot of items that correlate on the financials, one of them is the process for purchasing and financing building improvements/capital projects. If money is collected via a capital assessment and the project has not started then that money is restricted, but ideally it should be put into a separate account.

One of the main reasons we are discussing this information here is to show you how fixed assets (cooperatives) and capital projects (condominiums) relate to your cash flow.

Note: Fixed Assets (building improvements, building, land, etc.) will only be on a co-op’s balance sheet since the co-op owns the building. Condo’s will have a super unit that it purchased on the financials and maybe some equipment it purchased for the building’s gym or some furniture for the roof deck. 

Not all the bills that relate to December have been received by the time the management report is generated reviewed and distributed. This means that auditors will need to look at all the disbursements in January, February and even March to see if any bills paid are related to expenses incurred.

With over 35 years of experience serving co-ops and condos, the Czar Beer team can outline specific steps you should take to minimize taxes, maximize loan eligibility, and enhance the value of your property. For more information, contact us at info@czarbeer.com or (212) 397-2970.

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