What bookkeeping method do associations typically use?

Associations often utilize both cash basis and accrual basis accounting methods to effectively manage their financial records. Cash basis accounting records revenue and expenses only when cash is actually received or paid, providing a straightforward view of cash flow. On the other hand, accrual basis accounting recognizes revenue when it is earned and expenses when they are incurred, regardless of when cash transactions occur. This method offers a more comprehensive picture of the association's financial health over time.

By implementing both methods, associations can benefit from the immediate cash flow insights of cash basis accounting while also gaining a better understanding of their overall financial situation through accrual accounting. This dual approach allows associations to make informed financial decisions that align with both their short-term cash needs and long-term planning strategies. Furthermore, it aligns with the complexities of managing community finances, where timing of cash flows and commitments can vary greatly from budgeted expectations.

Utilizing only one method, such as exclusively cash basis or budget-based accounting, would restrict the association’s perspective on its financial health, making it less effective in anticipating future expenses and managing reserves appropriately. Therefore, using both methods provides a holistic and more agile financial management framework for community associations.