Most of us from day to day only concern ourselves with the amount of cash in our bank accounts, and we may have an idea of what money is owed to us, and what we still owe.
Cash accounting simply accounts for the actual cash that comes in and goes out, and we normally include cheques written but not yet cashed, and deposits received but not yet deposited.
Many condominiums or stratas will do their accounting this way on a month to month basis. And they may have a separate listing of the condominium fees still owed by owners.
Accrual accounting adjusts the results presented on a cash basis. Revenues are increased for amounts charged but not yet received, and expenses are increased for amounts owing but not yet paid.
These accrual adjustments result in assets and liabilities on the balance sheet. Accounts receivable are condominium fees charged but not yet received, and accounts payable are amounts owing but not yet paid.
Assets are the amounts owed to the corporation. These include cash held by a bank, investments held at a bank, and condominium fees receivable. Assets also include services owed to the corporation, for example insurance paid for, for the following year, but not yet received.
Liabilities are the amounts owed by the corporation. And include invoices not paid, services received but not paid, and overpayments of condominium fees by owners.
Net assets are the difference between the amounts owed to the corporation and the amounts owed by the corporation.
Amounts owing from the reserve fund and operating fund result for example
- when the operating fund pays for expenses of the reserve fund
- when the transfer from the operating fund is recorded but the cash is not transferrred
- when bank charges or other charges to the reserve bank are recorded as operating fund expenses