governing documents, in state statute governing community associations, and other sources including federal and local governments. Consultations with entities, such as the agent, Conclusion For many CAMs who are taking this course, budget preparation has been a primary function for you, others who are new to the industry may still feel some anxiety about having an involvement in the budget process. However, all must be mindful of matters relating to budget preparation, such as the fundamental elements to a budget. The unique requirements determined by statute and governing documents. A CAM must stay organized and understand the information that is important for budget preparation and know how to obtain that information. ● Account (line item) : Created and used in a budget to define each class of items for that money or the equivalent is spent or received. It is used in balance sheets, budgets, and other financial reports to organize the finances and to segregate expenditures, revenue, assets, and liabilities to give interested parties a better understanding of the organization’s financial health. The chart of accounts lists all such accounts. ● Assets : Any item of economic value owned by an individual or other entity, especially that which can be converted to cash. ● Balance sheet : A statement of a company’s financial position at a particular moment in time. It shows the two sides of a company’s financial situation, the monetary value of what it owns, and what it owes. What the company owns (assets), are always equal to the combined value of what the company owes (liabilities), and the value of its shareholders’ (association member’s) equity. ● Balanced : When the amount budgeted for revenue and the amount budgeted for expenses are equal. The annual budget for condominiums, cooperatives, and timeshares should be balanced. ● Budget : An estimate of revenue and expenses for a specific period of time. The association should develop the budget to meet its objectives as they relate to its primary functions of protecting, preserving, and enhancing the property and its assets, the lifestyle of the community, and the harmony of the community. ● Capital expenditure : Any disbursement of funds for the purchase or replacement of an asset, the useful life of which is greater than one year, or for the repair of an asset that will extend its useful life for a period greater than one year. ● Common expenses : The expenses related to the operation, maintenance, repair, replacement, and protection of the common elements and association property, and the costs of carrying out the powers and duties of the association. Community associations are required to budget for all common expenses. ● Deferred maintenance : Any maintenance or repair that is performed less frequently than yearly and results in maintaining the useful life of an asset. ● Deficit : A status of financial health when expenditures exceed revenues.
association attorney, and accountant are often necessary to understand and stay current on insurance requirements.
Often a CAM is working with the board, board members, or a committee to develop the budget. That CAM should be prepared to act as a guide to inform them that there may be statutory changes that may have an impact on the way the budget is prepared, reports necessary to be provided with the proposed budget, and/or procedures by which the budget is to be provided, reported, and approved. Always remember that Licensed CAMs and CAM Firms cannot knowingly perform any act directed by the association if such an act violates any state or federal law. ● Due diligence : Reasonable steps taken by a person to satisfy a legal requirement, especially in buying or selling something. ● Expense (expenditure) : An expense, or expenditure is an outflow of money to another person or entity to pay for an item or service. ● Fiscal year (FY) : The 12-month period an organization uses for budgeting and financial reporting. It differs from a calendar year; its beginning and end dates may encompass any 12-month period including. The bylaws state the fiscal year of the association. Community associations are required, by statute, to create an annual budget, based on the association’s fiscal year.. ● Income : In strict accounting terms, income refers to the profit or the money that remains after deducting expenses from revenue. However, community associations typically use the terms income and revenue interchangeably. ● Limited common element s (LCE): Some associations have limited common elements, such as a penthouse swimming pool or a garage, that are restricted to the use of specific members. If the association’s governing documents identify those elements as the financial responsibility of those members, the association is required to create a separate proposed budget that estimates revenue and expense for those limited common areas. That budget should identify the additional maintenance assessment for those members and appear as an attachment to the basic budget. ● Operating section : A section of a budget that identifies routine, regularly occurring, expenses of the association. It effectively functions as the association’s annual financial plan. ● Reserve section : A section of the budget that appears as a single account or line item that shows the cost of funding the reserves for the next fiscal year. It is based on a schedule, attached to the budget that estimates expenses for capital expenditures and deferred maintenance over a multi-year, long-term period. The reserve section functions as the long-term financial plan of the association. ● Revenue : The amount of money an association receives during a specific period.
GLOSSARY
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Book Code: CAMFL1526
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