Definition and Purpose of an Operating Fund
The operating fund is a financial account used by condominium corporations to cover the day-to-day expenses of managing and maintaining common property.
Under the Condominium Property Act (CPA) a corporation shall establish and maintain a fund to be used for the payment of common expenses incurred in performing its duties and exercising its powers.
Purpose of the Operating Fund
Covers recurring costs such as landscaping, janitorial services, insurance, and utility payments.
Ensures stable cash flow for ongoing operations.
Allows the condominium corporation to meet financial obligations without delay.
The operating fund is separate from the reserve fund, which is designated for major repairs and long-term capital expenditures.
Types of Transactions Recorded in the Operating Fund
Revenue Sources (Money Coming In)
Condominium fees: Regular contributions from unit owners to cover common expenses.
Special assessments: Additional fees collected for unexpected costs not covered in the budget.
Interest income: Any interest earned on operating fund balances.
Miscellaneous income: Revenue from sources such as rental fees for common areas.
Expenditures (Money Going Out)
Utilities: Payments for water, electricity, gas, and other essential services.
Maintenance and repairs: Routine upkeep of common areas, including cleaning, landscaping, and minor repairs.
Insurance premiums: Costs associated with required condominium insurance policies.
Management fees: Payments to condominium management companies for administrative services.
Legal and professional fees: Costs related to hiring accountants, auditors, or legal advisors.
Requirements for Maintaining Separate Accounts for Reserve and Operating Funds
The Condominium Property Act requires condominium corporations to maintain separate accounts for the operating fund and reserve fund to ensure financial accountability and compliance.
The operating fund must be used exclusively for day-to-day expenses.
Reserve fund contributions must not be used to pay for operating costs.
Financial records must clearly distinguish between operating and reserve fund transactions.
This separation ensures transparency and protects unit owners’ financial interests by preventing misallocation of funds.
Common Financial Entries Related to the Operating Fund
To ensure accurate financial tracking, all transactions must be properly classified in the corporation’s accounting records.
Example 1: Recording Monthly Condominium Fees
Journal Entry:
Debit: Bank Account (increase in cash)
Credit: Condominium Fees Revenue (increase in income)
Example 2: Paying a Landscaping Invoice
Journal Entry:
Debit: Landscaping Expense (increase in expense)
Credit: Bank Account (decrease in cash)
Example 3: Transferring Funds to the Reserve Fund
Journal Entry:
Debit: Reserve Fund Contributions (expense)
Credit: Bank Account (decrease in operating fund cash)
Accurate journalizing and posting ensures compliance with Alberta regulations and provides a clear audit trail for financial reporting.
