Fund Accounting: The Great Divide
Condo corporations do not put all their money into one bucket. They use fund accounting to strictly separate short-term daily spending from long-term savings.
The Operating Fund: Covers routine, day-to-day expenses that happen at least once a year (e.g., utilities, minor repairs, insurance, management fees).
The Reserve Fund (or Contingency Reserve Fund/CRF): Dedicated strictly to major, infrequent repairs and replacements of common elements (e.g., replacing a roof, overhauling an elevator).
Crucial Rule: Never intermingle these funds. Every Canadian province legally mandates a reserve fund. If money must be temporarily borrowed between them, it must be meticulously tracked using "Due To/From" accounts and paid back according to local regulations.
Jurisdiction Examples | Reserve Fund Requirements |
Ontario | The annual budget must include a designated allocation for the reserve fund. |
Alberta | Corporations must provide the annual budget to owners at least 30 days before the start of the fiscal year it pertains to |
British Columbia | Strata corporations must contribute at least 10% of their operating budget to the CRF every year. |
Manitoba | The reserve contribution must be clearly highlighted in both the budget and financial statements. |
Accrual Accounting vs. Cash Basis
Condos generally do not use cash accounting (recording transactions only when money changes hands). Instead, they use accrual accounting to comply with Generally Accepted Accounting Principles (GAAP).
Revenue is recorded when it is earned (e.g., monthly condo fees are logged as revenue on the first of the month, even if an owner pays late).
Expenses are recorded when they are incurred (e.g., a plumber fixes a pipe in May, so the expense is logged in May, even if the vendor invoice isn't paid until June).
This approach ensures a true, unskewed picture of the corporation's financial health and ensures costs are fairly allocated to owners over time.
Money In vs. Money Out
Because condo corporations operate as not-for-profit entities, their financial goal is to break even, not to generate a profit. Any extra operational surplus belongs to the owners collectively and is typically carried forward or moved into the reserves.
Common Revenue Sources
Maintenance Fees: The predictable monthly assessments paid by owners based on their unit's proportionate share. These transactions use revenue accounts and are included in the income statement.
Special Assessments: One-time, lump-sum charges levied on owners to pay for unexpected shortfalls or specific urgent projects. These transactions use capital reserve liability accounts and are included in the balance sheet.
Ancillary Income: Interest earned on reserve investments, parking/amenity user fees, key fob replacements, and bypass chargebacks for rule violations.
Reserve bank transactions: These transactions use capital reserve liability accounts for transactions and are included in the balance sheet.
Operating bank transactions: These transactions use revenue accounts and are included in the income statement.
Common Expense Categories
Operations: Utilities (common areas), day-to-day maintenance contracts (snow removal, landscaping, security), insurance premiums, and property management fees. These transactions use expense accounts and are included in the income statement.
Reserve Allocation: The regular, budgeted transfer of cash out of the operating fund and into the reserve fund. These transactions use capital reserve liability accounts and are included in the balance sheet.
Capital Reserve vs. Operating Expenditures
This is where bookkeepers most frequently make mistakes. You must know where an expense belongs before you log it.
Operating Expense = Maintained: Fixing a leaky valve or patching a small tear in a carpet belongs in operating. These transactions should use expense accounts and are included in the income statement.
Capital Expenditure = Replaced: Replacing the entire boiler system or recarpeting all hallways belongs strictly in the reserve fund records. These transactions should use capital reserve liability accounts and are included in the balance sheet.
Always ensure major capital expenditures have formal Board approval and are paid directly out of the reserve bank account.
Tracking and Balancing Reserve Balances
When reviewing a condo corporations's financial statements you must ensure that the total amount for Capital Reserve Assets is the same as the total amount for Capital Reserve Liabilities.
Each time a capital reserve entry is recorded to or from the bank there should be a corresponding capital reserve liability entry
If an entry was paid from the wrong bank (operating bank for a capital expenditure or reserve bank for an operating expense) then a due to from entry must also be recorded to show to balance owed to either the reserve or operating bank
Each transaction will have at least 2 lines, one for the bank entry and another to explain the bank entry. Common capital reserve transaction line and accounts used are
Transaction Type | Capital Reserve Account | Type and direction |
Reserve bank deposits | Reserve Bank | Asset - debit |
Reserve bank payments | Reserve Bank | Asset - credit |
Special levy / assessments charged | Special Levy Contributions | Liability - credit |
Reserve bank interest earned | Reserve Interest | Liability - credit |
Reserve bank charges | Reserve bank charges | Liability - debit |
Funds paid out of reserve bank for an operating transaction | Due to / from Operating | Asset - credit |
Funds paid out of operating bank for a reserve transaction | Due to / from Operating | Asset - debit |
Reserve investment account deposits | Reserve Investment Bank | Asset - debit |
Reserve investment account withdrawals | Reserve Investment Bank | Asset - credit |
Reserve investment account gains | Gain / Loss on investment | Liability - credit |
Reserve investment account losses | Gain / Loss on investment | Liability - debit |
Loan payments | Reserve Loan | Liability - debit |
New loan | Reserve Loan | Liability - credit |
Loan interest | Reserve Interest Expense | Liability - debit |
Expenses for capital reserve projects | Reserve Expenditures | Liability - debit |
Year end retained earnings entry to close out the year's reserve liability transactions | Reserve Fund Contributions - Previous Year | Liability |