B.D. from Middlesex County writes:
Dear Mister Condo,
Under the reserve section of the condo balance sheet there is a Negative amount noted for “Operating Fund Reserve”. What would that negative amount be the result of?
Mister Condo replies:
B.D., I know better than to tackle an accounting question without checking in with one of my expert friends. I reached out to my friend Sam Tomasetti, CPA of Tomasetti, Kulas & Company, P.C. for his advice. Here’s what he had to say:
B.D., with the sparse information provided it is a little tough to give you a definitive answer. However, the most likely reason is that over time your operating fund liabilities have exceeded your operating fund assets and thus have resulted in a negative operating fund reserve. Remember the operating fund on the balance sheet is an accumulation of activity from the inception of the association. On the income statement you may have a year where there is a profit, but when this is added to the activity of prior years, you can still have a negative operating fund on the balance sheet.
You should work to understand this negative as it could be a symptom of financial difficulties such as poor budgeting and borrowing from the replacement reserve to cover negative operating cost variances or poor collection policies regarding account receivable. On the other hand it could be that the your association has a significant loan outstanding that it plans to pay down over time with common charges to be collected in future years thus restoring the fund balance to a positive.
Understanding this negative can be confusing, but please keep trying!