Fund Accounting for Condominium Corporations
Definition and Purpose of Fund Accounting
Fund accounting is a method used by non-profit organizations and condominium corporations to separate and track financial resources based on their designated purpose. Unlike for-profit businesses, which focus on net income and profitability, condominium corporations use fund accounting to ensure that money collected from unit owners is allocated and spent according to legal requirements.
Key Financial Categories: Operating Funds vs. Reserve Funds
Condominium corporations maintain two primary types of funds:
Operating Fund:
Used for day-to-day expenses such as maintenance, utilities, and management fees.
Funds collected from unit owners through monthly condominium fees.
Must be separately accounted for from the reserve fund.
Reserve Fund:
Used for major repairs and replacements of common property elements such as roofs, elevators, and parking structures.
Funded through designated reserve contributions from unit owners.
Cannot be used for regular operating expenses.
The Condominium Property Act states a corporation shall establish and maintain a separate fund, to be known as the reserve fund, to be used for major repairs and replacement of property owned by the corporation. This legal requirement ensures that reserve funds are protected and not misused for operational costs.
Comparing Fund Accounting and For-Profit Accounting
Differences in Revenue Recognition and Expense Tracking
Fund Accounting: Tracks funds based on their designated purpose, ensuring legal compliance and financial accountability.
For-Profit Accounting: Focuses on maximizing profit and shareholder value, with revenues and expenses recorded to calculate net income.
Legal Obligations Unique to Condominium Corporations
Separate accounting for funds: Reserve funds and operating funds must be accounted for separately.
Annual financial statements: The Condominium Property Regulation requires condominium corporations to prepare annual financial statements, including a balance sheet, statement of revenue and expenditures, and statement of reserve fund operations.
Restrictions on fund usage: Reserve funds can only be used for capital repair or replacement expenses, not operational costs or capital improvements.
Evaluating the Benefits of Fund Accounting
Ensuring Long-Term Financial Sustainability
Properly managed fund accounting ensures that:
The condominium corporation has sufficient funds for future repairs and replacements.
Financial records are transparent and accurate, preventing disputes among owners.
The corporation remains compliant with Alberta legislation, avoiding legal or financial penalties.
Protecting Owners’ Investments and Minimizing Financial Risk
A well-funded reserve account prevents unexpected special assessments on owners.
Clear financial separation prevents misuse of funds and ensures responsible governance.
Maintaining proper fund accounting helps maintain property values and condominium appeal.
