Accounts Receivable

[Burke]

For all you accounting experts out there, I need some enlightenment. Accounts Receivables goes on the Asset side of the Balance Sheet, does it not? So what is the offsetting entry on the Liability side for this item?

[Uncle Sam]

Accounts Receivable Offset

The credit side of the entry is usually an income account, not a liability account,
although sometimes it could occur, but not in the ordinary course of business.
The only time that I could imagine that happening is if a contract was signed
for a customer to commit to paying for a product or service prior to the
recognition of income where you need to set up an Unearned Revenue Payable.

[kathyc2]

For all you accounting experts out there, I need some enlightenment. Accounts Receivables goes on the Asset side of the Balance Sheet, does it not? So what is the offsetting entry on the Liability side for this item?

A/R will generally have a debit (asset) value.

When sale occurs debit A/R and credit sales.
When money received debit cash and credit A/R.

Are you trying to convert accrual books to cash basis?

[TAXNJ]

Win anything

For all you accounting experts out there, I need some enlightenment. Accounts Receivables goes on the Asset side of the Balance Sheet, does it not? So what is the offsetting entry on the Liability side for this item?

Win anything?

http://www.dummies.com/how-to/conten...r-payment.html OR

http://simplestudies.com/accounting-...ffsetting.html. OR

http://www.understand-accounting.net/AccountsReceivableandPayable.html

[Burke]

A/R will generally have a debit (asset) value. When sale occurs debit A/R and credit sales. When money received debit cash and credit A/R. Are you trying to convert accrual books to cash basis?

I get it. I thought A/R's had to be on the balance sheet. Any receivables income would increase cash and decrease the A/R account which are both on the asset side. I am not trying to convert cash to accrual, but the situation is that I have been elected Treasurer of our HOA assn. and am trying to make sense of the balance sheet. Nothing is shown on it for Accounts Receivable although we have about $7K outstanding in unpaid dues. If A/R's are shown on the Asset side, then something is going to have to change on the Liability side, because it then won't balance. The only other accounts on the balance sheet are bank accounts and those figures are correct. Perhaps this is not done if the account is a cash basis entity?

[kathyc2]

I get it. I thought A/R's had to be on the balance sheet. Any receivables income would increase cash and decrease the A/R account which are both on the asset side. I am not trying to convert cash to accrual, but the situation is that I have been elected Treasurer of our HOA assn. and am trying to make sense of the balance sheet. Nothing is shown on it for Accounts Receivable although we have about $7K outstanding in unpaid dues. If A/R's are shown on the Asset side, then something is going to have to change on the Liability side, because it then won't balance. The only other accounts on the balance sheet are bank accounts and those figures are correct. Perhaps this is not done if the account is a cash basis entity?

It the books as being reported on a cash basis, there will not be anything showing in AR and the unpaid dues will also not show on the income statements. If they happen to use QuickBooks you can set the reports to be on an accrual basis, then you will see the AR on balance and income will also be higher on income statement.

[TAXNJ]

Kathyc2 correct

I get it. I thought A/R's had to be on the balance sheet. Any receivables income would increase cash and decrease the A/R account which are both on the asset side. I am not trying to convert cash to accrual, but the situation is that I have been elected Treasurer of our HOA assn. and am trying to make sense of the balance sheet. Nothing is shown on it for Accounts Receivable although we have about $7K outstanding in unpaid dues. If A/R's are shown on the Asset side, then something is going to have to change on the Liability side, because it then won't balance. The only other accounts on the balance sheet are bank accounts and those figures are correct. Perhaps this is not done if the account is a cash basis entity?

KATHYC2 is correct as other posters. Think the question for you as Treasurer is, are the books on the Accrual or Cash basis?

When you say " If A/R's are shown on the Asset side, then something is going to have to change on the Liability side, because it then won't balance." see the debits and credits that makes it "in balance"

BALANCE SHEET
BURKE'S ISSUE COMPANY - Accrual Basis

ASSETS Current Assets

Accounts Receivable
Accounts Receivable 7,000.00

Total Accounts Receivable 7,000.00

Total Current Assets 7,000.00

TOTAL ASSETS 7,000.00

LIABILITIES & EQUITY
Equity
Net Income 7,000.00

Total Equity 7,000.00

TOTAL LIABILITIES & EQUITY 7,000.00

[Uncle Sam]

Accounts Receivable Offset

If there are amounts due and owing the HOA, then
only IF the HOA is on the accrual - then an entry should
be booked recording the receivable, and CREDITING Income.

The credit does NOT get recorded as LIABILITY.

Accrual entries to increase Assets, either increase liabilities or increase income.
Accrual entries to increase Liabilities, either increase expenses decrease income.

[AZUKHiker]

Do accrual basis for management reporting

Make sure they are reporting on an accrual basis for management reporting. Cash basis isn't much help for managing the finances of the HOA.

[Burke]

Well, that is what I was thinking. Books are handled by a professional HOA management company, so my job is more of an oversight position in regard to income/expenses/bank accounts/capital reserves accounts/balance sheet, etc. The balance sheet does not show whether it is cash or accrual, but I guess it must be cash. I can tell it is not QuickBooks, but some other software. Each month they send me copies of the Balance Sheet, Bank Accounts, Checkbook Reconciliation with outstanding checks, Copies of Checks written, Income/Expense report and the Current Receivables Reports for unpaid assessments/dues. In the beginning, I could tell the Balance Sheet did not agree on the asset side with the actual bank account balances. It took 4 mos to straighten that out, and it went back to 2013. The asset side shows only the bank accounts. There are no liabilities shown under Liabilities. On the Liab/Equity side, there is an account labled "Reserves" but it shows "0." Then there is a Current Year Net Income/Loss account with a positive number, as well as a Retained Earnings Account with a negative number, and an Initial Capital Account and a Capital Contribution Account. I am thinking the larger "Capital" account should be shown in the Reserves account, as that is really what it is. Good thing I am not a bookkeeper, because I totally do not understand why, if you show A/R's on the asset side, you would increase Net Income on the Equity side, when you don't have it. And we have to do a financial review on these books this year, so I need to know what I am looking for. I am going to download the links TaxNJ posted and settle down for some studying. I probably confused everybody when I said "the Liability side." I didn't mean the Liability account, I think I know how that is handled. It's the Equity side. Since Liabilities are "0", everything is under Equity.

[TAXNJ]

Confused

Confused as to why you have to figure out what's right or wrong with the books!

If the books are handled by a paid professional HOA management company, suggest you:

1 - have the company provide you a trial balance and any other account analysis to let you understand what's going on with the accounts you mention.

2 - tell the Accountant of the professional HOA management to meet with you for a review and explanation of the books ASAP since you are paying for the accounting services.

3 - if not satisfied with the results of 1 & 2 terminate their services and contract with a new professional company that would provides the services you require as the new Treasurer.

[Burke]

Exactly. We are leaning towards just that, and have RFP's out for review. And we will be doing a financial review with their accounting dept this summer. No one prior to myself has ever dug into their accounting, and it shows. How anyone could not see that the cash assets did not balance to the bank accounts is beyond me. However, I don't see how a financial review can be productive unless you understand how accounting is done. Unfortunately a full-blown audit by a CPA firm is way beyond our budget due o a lot of unforeseen expenses this year.

[TAXNJ]

College or University

Exactly. We are leaning towards just that, and have RFP's out for review. And we will be doing a financial review with their accounting dept this summer. No one prior to myself has ever dug into their accounting, and it shows. How anyone could not see that the cash assets did not balance to the bank accounts is beyond me. However, I don't see how a financial review can be productive unless you understand how accounting is done. Unfortunately a full-blown audit by a CPA firm is way beyond our budget due o a lot of unforeseen expenses this year.

Consider contacting a local College or University Accounting Dept. Chair to see if a Senior or Graduate student could undertake a review of the issues as part of their thesis.

Also, would have the management Accountant provide all documentation of deposits & disbursements, bank statements and reconciliation reports. Compared the tax return with the accounting records in your meeting with the management Accountant. Have them provide PDF copies and Excel files to you - will save you a lot of time and effort.

Good Luck and hope you get compensation for your undertaking.

[kathyc2]

Well, that is what I was thinking. Books are handled by a professional HOA management company, so my job is more of an oversight position in regard to income/expenses/bank accounts/capital reserves accounts/balance sheet, etc. The balance sheet does not show whether it is cash or accrual, but I guess it must be cash. I can tell it is not QuickBooks, but some other software. Each month they send me copies of the Balance Sheet, Bank Accounts, Checkbook Reconciliation with outstanding checks, Copies of Checks written, Income/Expense report and the Current Receivables Reports for unpaid assessments/dues. In the beginning, I could tell the Balance Sheet did not agree on the asset side with the actual bank account balances. It took 4 mos to straighten that out, and it went back to 2013. The asset side shows only the bank accounts. There are no liabilities shown under Liabilities. On the Liab/Equity side, there is an account labled "Reserves" but it shows "0." Then there is a Current Year Net Income/Loss account with a positive number, as well as a Retained Earnings Account with a negative number, and an Initial Capital Account and a Capital Contribution Account. I am thinking the larger "Capital" account should be shown in the Reserves account, as that is really what it is. Good thing I am not a bookkeeper, because I totally do not understand why, if you show A/R's on the asset side, you would increase Net Income on the Equity side, when you don't have it. And we have to do a financial review on these books this year, so I need to know what I am looking for. I am going to download the links TaxNJ posted and settle down for some studying. I probably confused everybody when I said "the Liability side." I didn't mean the Liability account, I think I know how that is handled. It's the Equity side. Since Liabilities are "0", everything is under Equity.

The difference between cash and accrual is timing of recognition of revenue and expense. In cash basis you don't have revenue until you receive the cash, whereas in accrual revenue is recognized when billed.

Cash basis:
1- Send HOA bills, no accounting entry
2- Receive payment- debit cash and credit revenue. Increases asset, increases net income.

Accrual basis:
1- Send HOA bills- debit A/R and credit revenue. Increases asset, increases net income.
2- Receive payment- debit cash and credit A/R Increases one asset and decreases another asset so no change to net income.


The same would be true on the expense side:
Cash basis:
1- Receive service or invoice, no accounting entry
2- Send payment- debit expense and credit cash. Decreases asset and decreases net income.

Accrual basis:
1- Receive service or invoice- debit expense and credit A/P. Increase liability and decreases net income.
2- Send payment- debit A/P and credit cash. Decreases asset and liability so no change to net income.

Net income is just a one number total of all income statement (non balance sheet) accounts.

Net income on balance sheet is the summary of current year income/expense transactions. At the end of the year this balance is rolled into RE. Say at the end of 2014 you had net income of 10K. In todays world, software does it all for you, so most people don't even think of the transactions, but you would debit net income (it's a credit balance account so debit decreases it) and credit RE.

RE is the summary of all prior years income. In a normal business the RE account would also be reduced by dividends paid out, but don't think that pertains to your situation.

Since RE is negative, that would mean that over time you would have paid out more than taken in.

What is the nature of the capital account? What type of transaction occurs for there to be a change in these accounts?

If it was me, I'd set up a spread sheet for the balance sheet accounts and then enter columns for the last 5 years or so. That may help you to get a bigger picture of how the accounts are changing.