Question on Condominium Accounting from a non- Accountant

This is a non-CPA asking an accounting question.
The Bylaws of our condominium requires a fee equal to the estimated Annual Common Expense Assessment payable on the initial sales or
subsequent sale of property. These funds are considered to be working capital which may be utilized by the condominium association in its reasonable discretion to meet unanticipated or other expenses of the association. These funds are not required to be segregated from other funds of the association.
Our prior accountant recorded the receipt of these funds through the Income Statement and then transferred these funds onto the Balance Sheet. Our new accountant has recommended that upon receipt of these fees we directly record the fees onto the balance sheet.
Are both of these accounting approaches correct and, if so, which is the preferred methodology.
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You don't say if any of the funds are refundable to the current owner if/when they sell. If they are not going to be refunded, then they should be recorded on the income statement when received, if not sooner when billed or otherwise accrued.
Of course, the other entry to the recording of income generally is to cash, which is a balance sheet item.
The reason that you don't record any liability is because there is not a known amount of a payable (as there would be if a calculable portion is refundable) as there is when you record a liability for a bill.
--
Paul Thomas, CPA
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The funds are not refundable.
Is it improper to book directly to the balance sheet? Under what circumstances would this be an appropriate methodolgy?
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Accounting is a science. There are certain "musts" in accounting, as in there must be an equal balancing entry for every entry made. That is, to increase an asset (a debit entry), which is what you do when you make a deposit, there must be an equal amount of credit entries. Credit accounts are revenues and liabilities and equity. Knowing where something goes isn't that difficult.
Equity isn't a term used in homeowner association accounting, but it's more like "fund balance" that is commonly used in non-profit accounting.
Making a deposit of those funds does not create a liability because nothing is "due" to anyone. I don't see it as any sort of equity or fund balance entry either. It more closely resembles revenues of sorts, as it's the one-time or annual dues assessment that covers maintenance and repairs, utilities and taxes, and whatever other expenses the association has deemed are those of the association at large.
Now, you may create different fund balances out of the net assets such that you allow for the setting aside of certain funds to cover those big-ticket items like roofing, exterior painting, repaving of the roads, etc., and that is acceptable. But the fund balance is just the amount of assets over liabilities
On the area of liabilities, you can't book a liability (a payable) until the amount is known and enough of the events have transpired to create the legal obligation. To book a liability for roof repair, when it might be another 12 years before the roof is replaced is not acceptable accounting practice. Most people don't book a liability until the bill comes in, and if it remains unpaid as of the reporting date, it's a liability. Of course, if it's paid prior to the reporting date, it's listed as an expense on the income statement.
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Paul Thomas, CPA
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