DIVISION OF FLORIDA CONDOMINIUMS, TIMESHARES, AND MOBILE HOMES DEPARTMENT OF BUSINESS AND PROFESSIONAL REGULATION BUDGETS & RESERVE SCHEDULES A Self-Study Training Manual 2601 Blair Stone Road , TALLAHASSEE, FLORIDA 32399-1031 Budgets & Reserve Schedules A Self-Study Training Manual PUBLISHED BY THE Department of Business and Professional Regulation Division of Florida Condominiums, Timeshares, and Mobile Homes 2 TABLE OF CONTENTS FIGURES & TABLES..............................................................................................................................................5 PREFACE....................................................................................................................................................................6 1 GETTING STARTED ..............................................................................................................................................8 WHY DO ASSOCIATIONS HAVE A BUDGET?.............................................................................................................8 WHEN TO BEGIN THE BUDGETING PROCESS ...........................................................................................................8 MEETINGS HELD WHILE DEVELOPING THE BUDGET ................................................................................................8 SAMPLE NOTICES ......................................................................................................................................................9 ABOUT ACCOUNTING RECORDS ...............................................................................................................................9 ACCOUNTING SOFTWARE........................................................................................................................................10 GOOD ACCOUNTING PRACTICES ............................................................................................................................10 PROVIDING ACCESS TO ACCOUNTING RECORDS...................................................................................................10 SUMMARY OF CHAPTER 1 .......................................................................................................................................11 PRACTICE EXERCISES .....................................................................................................................................14 ANSWER KEY.......................................................................................................................................................15 2 THE BUDGET........................................................................................................................................................16 SECTIONS OF THE BUDGET .....................................................................................................................................16 USE OF RESERVES FOR OTHER PURPOSES...........................................................................................................16 INVESTING ASSOCIATION FUNDS ............................................................................................................................18 FISCAL YEAR ...........................................................................................................................................................19 SUMMARY OF CHAPTER 2 .......................................................................................................................................19 PRACTICE EXERCISES .....................................................................................................................................25 ANSWER KEY.......................................................................................................................................................27 3 RESERVES............................................................................................................................................................28 WHAT ARE RESERVES?..........................................................................................................................................28 DEFERRED MAINTENANCE & CAPITAL EXPENDITURE RESERVES .........................................................................28 EXAMPLES OF CAPITAL EXPENDITURES .................................................................................................................29 PRACTICE EXERCISES .....................................................................................................................................30 DIFFERENT TYPES OF RESERVES...........................................................................................................................30 POOLED RESERVES ................................................................................................................................................31 WHY ESTABLISH RESERVES?.................................................................................................................................31 WAIVING OR REDUCING RESERVES........................................................................................................................32 PRACTICE EXERCISE........................................................................................................................................34 TYPES OF RESERVES TO ESTABLISH......................................................................................................................35 ESTIMATING RESERVES ..........................................................................................................................................35 SUMMARY OF CHAPTER 3 .......................................................................................................................................36 ANSWER KEY.......................................................................................................................................................36 4 RESERVE SCHEDULE........................................................................................................................................38 WHAT IS A RESERVE SCHEDULE? ..........................................................................................................................38 RESERVE SCHEDULE DISCLOSURES ......................................................................................................................38 STEP SIX COMPUTE THE CURRENT YEAR FUNDING REQUIREMENTS AND WRITE THE REQUIREMENTS ON THE SCHEDULE ...............................................................................................................................................................41 ADJUSTING THE SCHEDULE.....................................................................................................................................44 PREPARING THE POOLING SCHEDULE ....................................................................................................................44 POOLING METHOD RESERVE SCHEDULE DISCLOSURES .......................................................................................47 HOW TO FUND RESERVES......................................................................................................................................49 PRACTICE EXERCISES .....................................................................................................................................50 ANSWER KEY.......................................................................................................................................................51 3 5 OPERATING EXPENSES....................................................................................................................................52 THE BUDGET ...........................................................................................................................................................52 THE ASSOCIATION’S ACCOUNTING INFORMATION SYSTEM ...................................................................................52 ACCRUAL BASIS OF ACCOUNTING AND CASH BASIS OF ACCOUNTING..................................................................54 ESTIMATING THE ASSOCIATION’S OPERATING EXPENSES .....................................................................................54 HISTORICAL DATA ...................................................................................................................................................55 CONTENTS OF THE OPERATING SECTION OF THE BUDGET....................................................................................56 TIPS ON PREPARING THE BUDGET..........................................................................................................................57 BUDGET LINE ITEMS EXPLAINED.............................................................................................................................58 SUMMARY OF CHAPTER 5 .......................................................................................................................................58 6 ASSESSMENTS....................................................................................................................................................59 HOW DO I COMPUTE THE ASSESSMENTS? ............................................................................................................59 PRACTICE EXERCISES .....................................................................................................................................61