GAAP requires which type of accounting for community associations?

• A. Cash Basis Accounting
• B. Accrual Accounting
• C. Tax Basis Accounting
• D. Modified Cash Basis

Answer: (B)

GAAP reporting for community associations uses accrual accounting. This means revenues are recorded when earned and expenses when incurred, not merely when cash changes hands. For a condo or homeowner association, this approach captures ongoing obligations like assessments due from members, bills from vendors, and the funds set aside in reserves for future repairs. It also records capital assets and their depreciation, giving a true picture of resources consumed over time. This method provides a clearer view of financial health, aligns income and related expenses to the correct periods, and supports accurate budgeting and reserve planning. Cash basis would distort timing of revenues and liabilities, while tax basis or modified cash basis do not meet GAAP standards for not-for-profit entities.