Prepaid Timing for Cash Basis Associations
Prepaid Timing for Cash Basis Associations
The following information explains how assessment payments appear on the Income Statement, Balance Sheet, and Homeowner Balance reports for cash basis associations. It applies when dues are billed annually, or on any schedule less frequent than how often homeowners pay.
NOTE: If the association is on accrual accounting, or if the billing frequency matches the payment frequency, the cause of any apparent discrepancy is different, and this information does not apply.
On a cash basis association, assessment income is recognized in the income GL only when a homeowner payment is applied to a posted assessment charge. If a homeowner pays before the annual billing posts, the payment sits in the Prepaid Assessments liability account on the Balance Sheet. It will not reach the assessment income GL until the annual billing post, and the prepaid amount is automatically applied to the new charge.
This timing creates two reporting outcomes. Both behaviors are expected on cash basis associations. Neither requires correction.
Income Statement assessment income looks low compared to cash collected.
In the months before the annual billing, the assessment income GL reflects only the few homeowners whose annual charge is already posted.
This can happen through resale, manual posting, or partial billing.
The bulk of the cash collected sits in the Prepaid Assessments liability on the Balance Sheet, not on the Income Statement.
Once the annual billing posts, the prepaid balances apply to the new charges, and the assessment income GL increases to reflect the recognized income.
Homeowner balance reports show balances for homeowners who do not owe anything.
A homeowner who pays dues in advance carries a credit balance in the Prepaid bucket.
Reports that summarize homeowner balances display this credit.
It can look like a balance even though no money is owed.
After the annual billing posts and the prepaid applies to the new assessment charge, those homeowners move to a $0 balance.
To verify the setup, check:
AR Accounting Type: on the Setup > Association Setup / Association Information screen If you are using universal navigation, click Associations > Associations > View All.
Billing Frequency: on the System > Assessments / Association Assessments screen If you are using universal navigation, click Accounting > Settings > Assessments.
Prepaid Assessments liability balance: on the Reports > Accounting Reports / Balance Sheet report (typically GL line 25-25000-99) If you are using universal navigation, click Insights > Reports > Accounting Reports.
Recognized assessment income: on the Reports > Accounting Reports / Income Statement report (Assessments GL, typically 40000-00) If you are using universal navigation, click Insights > Reports > Accounting Reports.