How Do You Book Year End Adjusting Journal Entries?

Something to think about – once the audit is approved to be distributed to current and potential owners, it makes it the “official” financial statement of the Association. Thus, the Association books should reflect the REAL number at that point.

With regards to booking year-end audit adjustments, you can choose between two options:

• Book all the AJEs
OR

• Book none of the AJEs

Note: There was NOT a choice to book some of the AJEs.

If you choose to book ALL of the AJEs

• Consider booking the summarized AJEs (if audit done by C&C) (Example follows this section where we will walk through the AJE).
• Make sure that ending equity agrees with the audited ending equity.
• DO NOT LET THIS CHANGE ALL YEAR LONG!!
• There should only be one “official” beginning equity account balance…you may need to combine accounts, especially if you are on QuickBooks. (Sidenote: other equity adjustments during the year for the prior year would be recorded in a Prior Period Adjustment account – not the “official beginning equity” account.)

If you choose to reverse some of the AJEs

• Do this as a separate step AFTER booking the AJEs and reconciling equity.
• You will never reverse against equity – you would reverse against an income or expense item (e.g. AP expense accounts, insurance expense, interest income)

If you disagree with one or more of the AJEs OR the AJE does not “fit” into your monthly financial statement presentation

• AFTER you book the AJEs and ensure that equity balances, reverse out the AJE that you do not want to show on your monthly financial statements.
• Reverse to an equity account that is separately setup and named – even consider naming it something unique like Audit Adjustments.
• Book each entry separately and make sure that you have backup and/or explanation of the reason for the adjustment. (Note: you will not remember everything a year later when the auditor asks…so take a moment now to document your reasoning.)  

• Make sure that you notify the auditor immediately if you disagree with an AJE. It is possible that the audit may need to be adjusted.
• NOTE: An audit has to be closed out within 60 days of issuance of the report.
• There may be reasons that the AJE is correct for audit purposes.

• Remember these are the Association’s financial statements. Make sure that the Board agrees with your adjustments.

• If the Board has requested changes in the financial statements (either as part of the year end audit process or at any time during the year), be sure to keep a copy of the Board meeting minutes authorizing the adjustments.

What about if you are on the CASH basis or modified cash basis? Should you book the AJEs? Some options/thoughts/comments:

• Some of our AJEs DO affect cash basis/modified cash basis financial statements
• We clean up multiple equity accounts (some QB clients have 3-4 different equity account balances!).
• We void old checks or deposits in transit.
• We book interest on CDs that has not been recorded in a timely manner.
• We clean up old balance sheet balances you brought over from a prior management company or just have not reconciled in awhile.

• Consider booking them all to reconcile equity and then reverse the accrual type entries to a separate equity account – Accrual Audit Adjustments. If you do this, be sure and provide a clear audit trail by booking separate entries and not net/lump amounts (see notes on prior page).

Sample HOA Working Trial Balance & Summarized AJEs