Fund accounting segregates money according to different uses (Operating, Capital Replacement,
Capital Improvement, etc.). The concept of fund accounting is based on the nature of the
expense incurred by an association,
“How do I reserve? Let me count the ways” is not exactly what Elizabeth Barrett Browning had
in mind when she penned her famous poem about love, but if you have 37 different Reserve
components, how many Reserve contributions do you make and track each month? One or 37?
There is a good answer.
Instinctively, we all know that large associations with many common area amenities in need of replacement should have a high Reserve Fund balance. Similarly, newly constructed small associations with only a few common area amenities have little need for much of a Reserve Fund balance.
What is the difference between a Capital Improvement and a Reserve project? Or more
specifically, when can a Capital Improvement be more properly considered as a Reserve
expense? This question becomes important to Association-governed communities s they
consider what funds can be used
Associations that have excess funds at the end of the year face the decision if and how those
funds can be moved to Reserves, or if they must be rolled over to the Operating Fund the
following year.
Your reserve study is fundamentally a budget/cash flow model and road map for significant future expenses. It is a planning tool.
