Cash vs Accrual Accounting — Which Does Your Condo Corp Need?
Introduction
Section titled “Introduction”If you’ve ever looked at your bank balance and thought “we have plenty of money” — only to discover a large invoice arriving the next week — you’ve experienced the limitation of cash-based thinking firsthand.
Cash Accounting: Simple but Incomplete
Section titled “Cash Accounting: Simple but Incomplete”Cash accounting records transactions when money actually changes hands. The problem is that it doesn’t reflect what you’ve committed to or what you’re owed. If your corporation signs a snow removal contract in October covering the full winter, cash accounting won’t show that expense until the invoices arrive.
Accrual Accounting: Accurate but Requires Discipline
Section titled “Accrual Accounting: Accurate but Requires Discipline”Accrual accounting records revenue and expenses when they are earned or incurred, regardless of when cash changes hands. That October snow removal contract gets spread across the months it covers.
Under accrual accounting, you’ll see terms like:
- Accounts receivable: Condo fees charged but not yet collected
- Accounts payable: Expenses incurred but not yet paid
- Prepaid expenses: Payments made for future periods
- Accrued liabilities: Expenses incurred but not yet invoiced
The Bottom Line
Section titled “The Bottom Line”Accrual accounting is the right choice for condominium corporations. It’s what auditors expect, it’s what proper fund accounting requires, and it’s what gives your board the accurate picture it needs.
Disclaimer: For general informational purposes only. Not legal, financial, accounting, or tax advice.