Academy/Financial Statements for Non-Accountants
Budget-vs-actual report
The one report that tells a board whether spending is on track, and where to ask why it isn't.
A budget-vs-actual report lines up what the board approved to spend against what the association actually spent or collected, line by line, for the same period. The gap between the two numbers is the variance. A variance is not automatically a problem, it is a signal that tells the board which line to ask about next.
What the report actually compares
An income statement reports revenue and expense for a period. A budget-vs-actual report takes that same period and adds a second column: what the board approved to spend on each line when it adopted the budget. Subtract one from the other and you get the variance, the dollar amount by which actual results ran above or below plan.
Every line item on the report, landscaping, insurance, management fees, assessment revenue, gets its own budget figure, its own actual figure, and its own variance. Nothing here is new math. It is the same numbers the association already tracks, arranged so a director who is not an accountant can spot the outliers in thirty seconds instead of reading two separate reports side by side.
A variance is a question, not a verdict
Running over budget on one line and under on another is normal. What matters is whether the board can explain why. Two variances that look identical on the page can mean completely different things.
| Line item | Budget (month) | Actual (month) | Variance |
|---|---|---|---|
| Landscaping | $500 | $500 | $0, on plan |
| Insurance | $1,000 | $12,000 | ($11,000), timing |
The insurance line above is not overspending. Many associations pay the annual premium in one lump sum, so January carries the whole year's cost while the budget spreads it evenly across twelve months. That is a prepaid expense, a payment made now for coverage the association uses over the rest of the year. The variance disappears by December. A landscaping line running 40 percent over budget in June with no lump-sum explanation is a different kind of variance, and it is the one worth a question at the meeting.
How often the board has to look varies
How often a board is required to review a budget-vs-actual comparison, and what else has to accompany it, varies by state and by governing documents. California sets one of the more detailed examples in statute:
"the current year's actual operating revenues and expenses compared to the current year's budget"
Source: Civil Code Section 5500, State of California
California requires that comparison on a monthly basis, alongside several other financial documents reviewed at the same time. That is one state's statute, not a national standard. Check your own state's HOA or condominium statute and your bylaws for what your board is actually required to review, and how often.
Check yourself
Answer before you read the explanation, recalling it is what makes it stick.
The pool maintenance line shows $500 actual against a $500 budget for the month. What does the variance report tell the board?
A community's insurance line shows 100 percent of the annual budget spent in January alone. What is the most likely reason?
Five months into the year, the landscaping line is 40 percent under budget, and the manager confirms nothing changed operationally. What should the board ask first?
Sources
- Income statement definition, AccountingTools
- Civil Code Section 5500 (Davis-Stirling Common Interest Development Act), State of California
- Prepaid expense definition, AccountingTools
Financial Statements for Non-Accountants
Once you can read a single month's variance, see how a run of them over time tells a bigger story in Understanding variance reports.
How often a budget-vs-actual comparison must be reviewed, and what else must accompany it, vary by state and by your governing documents.