How to Read Condo Financial Statements | ReservesPro

The first time a monthly package lands in your inbox, it can feel like a lot: a balance sheet, an income statement with three columns of numbers, a reserve schedule, bank reconciliations, and a delinquency report that you were not sure you were allowed to see. You can learn how to read condo financial statements without an accounting degree, because the job is less about the math and more about knowing which few numbers to check, in what order, and what to ask when one of them looks off.

This guide is for Florida condo board members, and treasurers in particular. It walks through what is in a typical package, a monthly reading routine you can do in one sitting, what Florida law requires in the annual report, and how to tell whether the reserve numbers are on track.

What is in the monthly package

Each management company formats the package its own way, and yours may include some version of these documents.

Balance sheet. A snapshot on one date of what the association owns, what it owes, and the difference.
Income statement against budget. Money in and money out for the month and the year to date, next to the budget for the same period.
Reserve schedule or reserve summary. The balance of each reserve account, what went in this period, and what was spent.
Bank reconciliations. Proof that the cash on the books matches the cash at the bank, for each operating and reserve account.
Delinquency report (also called an aged receivables report). Which owners are behind on assessments, and for how long.

Some packages also include a check register, a list of invoices paid, or a cash flow statement. If yours does not include the bank reconciliations or the delinquency report, ask for them, because they show whether the cash on paper is in the bank and whether owners are paying.

In Florida, an association that manages a condominium of 25 or more units must post the annual financial report and "any monthly income or expense statement to be considered at a meeting" on its website or app (718.111(12)(g)). So owners may be reading the same statements as the board.

The monthly read, step by step

The order matters more than the speed. Start with the numbers that are hardest to fake and work toward the ones that need judgment.

Check the cash. Confirm that the money on the books is money in the bank.
Read the balance sheet. See where the association stands today, fund by fund.
Compare spending to the budget. Find the lines that are drifting, and decide which ones need an explanation.
Read the delinquency report. Watch the trend, not only the total.
Check the reserves. Confirm that the contributions went in and that every withdrawal matches a project the board approved.

Most of the weight sits in steps 3 and 5, because that is where a budget problem or a reserve problem first shows up.

Step 1. Check the cash

Open the bank reconciliations first. Each one should tie the bank statement balance to the balance on the books, with a short list of items that have not cleared yet. A reconciliation that does not balance, or a list of uncleared items that keeps getting older, is a question for the manager this week, not at the next meeting.

Then check that reserve cash and operating cash are reported apart. Florida law lets an association hold reserve and operating money in one account for investment purposes only. Even then, the two "shall be accounted for separately, and a commingled account shall not, at any time, be less than the amount identified as reserve funds" (718.111(14)). If you cannot tell from the statements how much of the cash is reserve money, ask the manager for a report that shows it.

Step 2. Read the balance sheet

The balance sheet has three parts, and the first two must always add up to match the third.

Assets are what the association owns or is owed. Operating cash, reserve cash and investments, assessments that owners owe but have not paid (receivables), and costs paid in advance, such as an insurance premium.
Liabilities are what the association owes. Unpaid invoices (payables), assessments that owners paid early, and any loan balance.
Fund balance is what is left after liabilities come out of assets. If your statements show separate columns for the operating fund and the reserve fund, read each one on its own.

Start with the operating side. If the bills due soon are larger than the cash and receivables that can pay them, the operating budget is short, and the board will soon face a choice between a special assessment, a loan, or a cut. A negative operating fund balance means the association owes more than it has on the operating side. That is a conversation for the next meeting, with the manager, the CPA and, if needed, the association attorney.

Look at the liabilities for anything you did not expect, especially a loan. Associations can borrow, and sometimes borrowing is the right tool. But a loan or line of credit used to fund reserves for the structural items in a structural integrity reserve study (SIRS, the Florida study that covers a building's structural and life-safety components) requires "the approval of a majority vote of the total voting interests of the association" (718.112(2)(f)2.c.). If you see a loan, ask when it was approved, by whom, and on what terms.

Step 3. Compare spending to the budget

The income statement is where most board members spend their time, and most of that time should go to one column, the year-to-date variance against the budget.

A variance is the gap between what the budget said and what happened. Small variances are normal. What you are looking for is direction and timing. A line that is well over budget in April has eight months to get worse, while the same gap in November may come from one large invoice. Insurance and utilities can also look strange month to month because of when the bills land, so ask the manager how each large line is spread across the year.

The pattern to watch is the same lines running over budget quarter after quarter, and year after year. That usually means the budget is built on last year's numbers instead of real costs, and the shortfall will come out of someone's pocket later. If that is where your association is, How to Handle a Condo Association Budget Deficit walks through the options.

Two more lines deserve a look. A large "other" or "miscellaneous" expense can hide spending that belongs somewhere else, so ask for the detail. And check that the reserve contribution on the income statement matches the amount in the adopted budget. If the budget set a monthly reserve amount and less went in, that is a change the full board should see and decide in the open.

Step 4. Read the delinquency report

Florida law requires the association to keep, for each unit, "a monthly, bimonthly, or quarterly statement of the account" with the amount due, the amount paid and the balance (718.111(12)(a)11.). The delinquency report rolls those accounts up by how long each balance has been past due, for example in 30, 60 and 90-day columns.

One month's total tells you little. The trend tells you a lot. When the 90-day column grows month after month, the association is collecting less cash than the budget assumed, and the board ends up covering the gap from other budget lines. Ask what stage each older account is at in the collection process the board approved.

Step 5. Check the reserves

The reserve accounts are long-term savings for the big, predictable costs, such as a roof, painting, paving, elevators and, in a SIRS building, the structural items. Florida requires the budget to include reserve accounts, with the amount "computed using a formula based upon estimated remaining useful life and estimated replacement cost or deferred maintenance expense of the reserve item" (718.112(2)(f)2.a.).

Each month, confirm three things. The budgeted contribution went in. Every withdrawal matches a reserve project the board approved. And the interest that the reserve money earned stayed in reserves, because Florida law says reserve funds "and any interest accruing thereon shall remain in the reserve account or accounts" unless the owners vote otherwise in advance (718.112(2)(f)3.).

Interest is the quiet half of the reserve plan. Money that sits in reserves earns interest, and the interest compounds. Money that a board decides not to save does not stay the same size, because the repair it was meant to pay for gets more expensive every year it waits. Saved dollars compound, and deferred dollars inflate. For more on how the two funds differ, see Reserve Fund vs. Operating Fund.

What Florida requires in the annual financial report

The monthly package is for the board. The annual financial report is for every owner, and Florida sets its timing, its level of detail and what it must disclose about reserves.

Timing. The association must prepare the report "within 90 days after the end of the fiscal year, or annually on a date provided in the bylaws." It then delivers the report, or a notice that owners can request a free copy, within 21 days after the report is final and "not later than 180 days after the end of the fiscal year" (718.111(13)).

Level of detail. The type of report depends on the association's total annual revenue (718.111(13)(a) and (b)).

Less than $150,000: a report of cash receipts and expenditures, which must show reserves accumulated and spent.
$150,000 or more, but less than $300,000: compiled financial statements.
At least $300,000, but less than $500,000: reviewed financial statements.
$500,000 or more: audited financial statements.

The levels differ in how deeply the outside accountant checks the numbers. Ask your CPA what your association's level does and does not cover. Owners can vote, by a majority of all voting interests, to use a lower level for one year, but not for consecutive fiscal years (718.111(13)(d)). For the full rules, see Condo Association Audit Requirements in Florida.

The reserve disclosure. The statute directs the state to set standards for "a summary of association reserves, including a good faith estimate disclosing the annual amount of reserve funds that would be necessary for the association to fully fund reserves for each reserve item based on the straight-line accounting method" (718.111(13)). That disclosure does not apply to reserves funded by the pooling method.

So, unless your reserves are pooled, the annual report puts the full-funding number in front of every owner. Compare it with what the budget actually contributes. The gap between the two is the clearest single measure of whether the board is saving for the wear the building takes each year.

When you read the report, also read the notes. The notes explain the accounting methods, the reserve policy, any loans and their terms, and anything unusual that happened during the year. If the accountant's letter at the front of the report flags a concern or a limit on its work, ask the CPA to explain it to the board.

How to tell if the reserve numbers are on track

The reserve balance on the balance sheet tells you what is in the account today. It does not tell you whether that is enough. As an illustrative example, a $400,000 balance sounds strong until you learn that a $900,000 roof is due in six years and nothing else in the plan covers it.

The measure that connects the balance to the need is percent funded. It compares the reserve balance to the amount the reserves should hold today for the share of each component's life that has already been used up. (A component is one item the reserves pay for, such as the roof or the elevators.) Your reserve study shows the number, and What Does Percent Funded Mean? explains how it is built. How to Read a Reserve Study covers the rest of the study.

Boards usually hear about three funding goals.

Baseline funding keeps the reserve balance above zero, and nothing more. It leaves no cushion, so any surprise becomes a special assessment.
Threshold funding keeps the balance above a floor that the board picks, such as a set percent funded. A floor such as 70% is a minimum, not a healthy or adequate level.
Full funding saves for each component's wear as it happens, so the money is there when the replacement comes due. Owners pay for the wear that happens on their watch, and no one inherits a bill for someone else's years.

Full funding is the goal, and the only real choice is how fast the board gets there. A building that starts far behind may need several budgets to close the gap, which is fine, as long as the plan moves in one direction. Baseline vs. Threshold vs. Full Funding compares the three in more detail.

If you want to see what waiting costs, the Cost of Waiting Calculator shows how the price of a deferred project grows.

Red flags, and what to do about each

None of these means the board did something wrong. Each one is a signal to ask a question, and each one has a next step.

A bank reconciliation that does not balance, or old uncleared items. Ask the manager to clear or explain each item before the next package.
Reserve cash that you cannot separate from operating cash. Ask for a report that shows the reserve amount, and confirm that the commingled account never dropped below it.
The same budget lines over budget, year after year. Rebuild those lines from real invoices and contracts at the next budget cycle, rather than from last year's budget.
A growing 90-day delinquency column. Review the collection policy with the manager and, if needed, the association attorney.
Reserve contributions lower than the adopted budget. Ask who decided and when. Then restore the contribution, or bring the change to the board in the open.
A reserve balance that falls year after year. One year down after a big project is normal. Several years in a row means the association spends more on capital work than it saves, and the reserve plan needs another look.
A loan you did not know about. Ask for the approval record and the terms.

Underfunded reserves are the avoidable cause of most of them, and steady saving is how a board prevents them. But some assessments come from things no budget fully controls, such as hurricane damage, a code change or a lawsuit. A board that reads the statements every month will see the avoidable kind coming early enough to plan for it, and will have a better footing for the other kind.

Questions to bring to the next meeting

Which budget lines are over budget for the year to date, and why?
Did every reserve contribution this year go in as budgeted?
What did the reserves earn in interest, and did it stay in reserves?
What is our percent funded today, and where will it be in three years at the current contribution?
How does our annual reserve contribution compare with the full-funding estimate in the annual financial report?
When is the next large reserve project, and does the plan cover it?
Is the 90-day delinquency column growing or shrinking?
Has the annual financial report been completed and delivered to owners on time?

Owners have the right to ask questions too. In a residential condo association of more than 10 units, the board must meet at least quarterly, and at least four times a year the agenda must include time for owners to ask questions (718.112(2)(c)). Owners can also request the official records, which the association must make available within 10 working days of a written request (718.111(12)(b)). For the reporting duties around meetings, see Florida Condo Board Meeting Requirements for Financial Reporting. For the treasurer's side of the job, see What Does a Condo Board Treasurer Do?.

From statements to a plan

Financial statements look backward. They tell you what happened last month and last year, and that is valuable, because the board can only fix what it can see. But the hard decisions are about what comes next. Do we fund the next project from reserves, a special assessment or a loan? What will insurance do to the budget? How fast can we reach full funding without a shock to owners?

That is the work of a capital plan. The Reserves Pro Capital Plan puts reserves, insurance, debt and special assessments into one scenario-modeled document that your board can read, so you can compare the real choices before you vote. We build it from your reserve study and recent financials, and we refresh it each quarter with your finance committee, so it never sits in a drawer.

See how the Capital Plan works

Frequently asked questions

What should I look for first in condo financial statements? Start with cash. Check that the operating and reserve balances match the bank reconciliations, and that reserve money is reported apart from operating money. Then compare year-to-date spending to the budget, check the delinquency report, and confirm that the reserve contributions went in as budgeted.

How often should a condo board review financial statements? Read the package every time the manager or treasurer sends one, and ask for it monthly if you can, even when the board meets quarterly. A problem is easier to fix while it is still small. In Florida, a residential condo association of more than 10 units must hold a board meeting at least once each quarter.

What financial report does a Florida condo association have to give owners? Under section 718.111(13) of the Florida Statutes, the association prepares an annual financial report within 90 days after the fiscal year ends, or on the date in the bylaws. The level of the report depends on total annual revenue, from a report of cash receipts and expenditures to compiled, reviewed or audited statements. The association delivers it, or a notice that owners can request it, within 21 days after it is final and no later than 180 days after the fiscal year ends.

Does a large reserve balance mean the association is in good shape? Not by itself. A balance only means something next to what the building will need. Percent funded compares the reserve balance to the amount the reserves should hold for the wear the components have already used up. The goal is full funding, and the question for the board is how fast it gets there.

This article is for general education. It is not legal advice. Florida statutes change, and your governing documents also apply, so consult your association attorney before you act on a statute. It is also not financial or investment advice. Consult your CPA, treasurer or registered investment advisor about your association's accounts, reserves and investments.