CCM Financial Management & Budgeting Flashcards

A community manager is preparing an annual operating budget for a homeowners association. Which document should they primarily reference to ensure accuracy?

Answer: Prior year's audited financial statements

Prior year audited financials provide the most reliable baseline for projecting accurate income and expense line items.

Which financial reserve is specifically set aside to fund future major repair and replacement of common area components?

Answer: Capital reserve fund

A capital reserve fund (reserve fund) is designated for long-term repair and replacement of major components like roofs, paving, and HVAC systems.

When a community association's actual expenses exceed budgeted amounts mid-year, what is the BEST first step for the community manager?

Answer: Prepare a variance analysis and present options to the board

A variance analysis identifies the root cause of the shortfall so the board can make an informed decision on corrective action.

What is the primary purpose of a reserve study for a community association?

Answer: To project the useful life and replacement cost of major components

A reserve study evaluates major components' remaining useful life and replacement costs so the association can fund reserves adequately.

Under standard community association financial practices, who has the authority to approve unbudgeted expenditures that exceed a defined threshold?

Answer: The board of directors

The board of directors holds fiduciary responsibility and must authorize significant unbudgeted expenditures.

Which accounting method records revenue when earned and expenses when incurred, regardless of when cash changes hands?

Answer: Accrual basis accounting

Accrual basis accounting matches revenues and expenses to the period they occur, providing a more accurate financial picture.