Is Reserve Accounting Required and/or Recommended?

Is Reserve Accounting Required and/or Recommended?

RCW states that for condominiums reserve cash accounts are encouraged.

IRS states that in order to file form 1120 separate reserve cash accounts and accounting is required. Not required on form 1120-H.

GAAP does not require fund accounting, but recommends it.

Industry standard (and the standard promulgated by CAI) states that reserve accounting should be separated from operating activity and recommends fund accounting presentation.

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Puget Sound Area – many/most management companies are NOT doing fund accounting nor are they segregating reserve activity …BUT there is a trend towards doing so!! (Hopefully, C&C has been involved in encouraging that trend). If you want to be a part of that trend (which will become the norm), you need to start thinking about reserve accounting.

C&C Recommendation
YES ~ ABSOLUTELY
Separate replacement fund/reserve accounting

– Even if you cannot present the financial statements on the fund method
– Even if you are on the cash basis of accounting!!

Why???