Fund balances

What the number actually means

A fund balance is not a bank balance and it is not a budget line. It is a calculation: everything that fund owns, minus everything that fund owes, at a specific point in time. The association does this calculation separately for each fund it keeps, because the funds themselves are kept separate on purpose.

"Fund accounting is a system of accounting used by non-profit entities to track the amount of cash assigned to different purposes and the usage of that cash."

Source: Fund accounting definition, AccountingTools

Why there is more than one fund balance

Most associations run at least two funds, and each one carries its own fund balance because each one pays for something different on a different timeline. The operating fund pays for what the community uses today: landscaping, utilities, insurance, management fees. The reserve fund pays for what the community will need years from now: a roof, resurfaced asphalt, a rebuilt pool.

"The operating fund pays for the things the community uses today: landscaping, utilities, insurance premiums, management fees, payroll, pool chemicals."

Source: Operating Fund vs. Reserve Fund, Common Interest Community Standards Council

Report each fund's balance next to the other and the board can see, at a glance, whether this month's money and next decade's money are both where they should be.

Restricted and unrestricted pieces

Within a single fund, part of the balance can be earmarked and part can be free to use. Some accounting sources describe fund balances as split into categories such as restricted and unrestricted. That specific breakdown comes from government accounting, not from a rule written for HOAs, so treat it as one way to picture the idea rather than a required label on your own statements: a fund balance is rarely one undifferentiated number, and knowing what portion is actually free matters more than the total.

What the board should never assume

"There is $120,000 in the bank, so we have $120,000 to work with" is the most common misreading of a fund balance. Fund accounting exists specifically to stop reserve money from being spent as if it were operating money, and the reverse. Whether, when, and how money may move between an association's operating and reserve fund balances depends on its governing documents and its state's statute, so check both before assuming a transfer is fine.