Exam (elaborations)
M-100 - Focus Questions: FINANCIAL STATEMENTS, AUDITS, INCOME TAXES, & INVESTMENTS
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M-100 - Focus Questions: FINANCIAL STATEMENTS, AUDITS, INCOME TAXES, & INVESTMENTS
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M-100 - Focus Questions: FINANCIALSTATEMENTS, AUDITS, INCOME TAXES, &
INVESTMENTS
Explain two reasons for preparing financial reports. - ANSWER 1. To provide
their internal and external users with information needed TO MAKE APPROPRIATE
DECISIONS on behalf of or regarding the community association.
2. To enable the community association board and manager to CONTROL the
community's FINANCIAL OPERATIONS.
What are some reasons why the form and content of one community association's
financial reports may be different from the form and content of another's. -
ANSWER - Community association's unique information needs. - Software
package used.
- Expertise and experience of the internal user - the owners. - Expertise and
experience of the preparers.
- Reasons for preparing the report. - Formatting.
Explain the difference between the cash basis, accrual basis, and modified cash
basis accounting methods used for reports. - ANSWER -CASH BASIS records
revenue when it is COLLECTED and expenses when they are PAID.
- ACCRUAL BASIS records revenue when it is EARNED(ASSESSED to owners) and
expenses when they are INCURRED.
- MODIFIED CASH BASIS records revenue on the accrual basis (when it is
EARNED/ASSESSED) and expenses on a cash basis (when they are PAID).
, List some warning signs about the financial health of a community association to
watch for when you review its financial reports. - ANSWER - Steady decline in
the amount of cash on hand - Replacement of reserves not set aside (no formal
reserve study) - Increase in assessments owed to the community. - Increase in
what the association owes for bills.
- Failure to resolve any differences between band statements and financial
reports. - Significant and or unexplained differences between actual and budgeted
figures. - Members equity balance is less than one to three months of operating
expenses.
Name and define the two financial statements that are the minimum required for
interim reporting purposes. - ANSWER - A STATEMENT of REVENUE and
EXPENSES with comparison to the budget. A statement of revenue and expenses
RECORDS the financial transactions during a given period of time - generally for a
given month plus the fiscal year to date. It's a way to keep track of the
communities financial activities.
A statement of revenue is intended for no-profit entities (community
associations). A Statement of income is intended for for-profit entities.
- A BALANCE SHEET. A balance sheet is a summary of a community's financial
position at a specific point in time.
A balance sheet summarizes what your community association OWNS, what it
OWES, and the net worth of the association.
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