Question: Why does a longstanding term deposit appear as a debit in the administration account?
At the AGM, we elected a new executive committee. They’ve discovered financial discrepancies. The amount of a term deposit was withdrawn from our administration account, which left the account in deficit.
The term deposit has been in place for several years, and we cannot see why it would appear as a debit entry in the administration account. Our new strata manager is also unable to explain why the term deposit appears there.
Can we request a face-to-face meeting with the strata accountant to clarify these anomalies?
Answer:A term deposit represents the investment of unused funds.
A term deposit represents the investment of unused funds. It should come from the fund that has a surplus.
If the admin fund is in deficit, as you say, that term deposit investment should be allocated to (come from) the capital works fund (CWF).
However, a term deposit does not affect either fund’s balance (equity).
Allocating it to admin does not decrease the admin fund balance (equity) into, say, a deficit position.
As you may see on a balance sheet, there are separate totals for the admin and CWF (equity) represented by assets and liabilities.
The term deposit is an asset. When it is created, ‘admin cash at bank’ asset decreases and ‘admin term deposit’ asset increases (from nil). Equity is unaffected.
Whilst I agree your term deposit should move from admin to the CWF, that won’t repair your admin fund deficit, which I think you were hoping it would.
The admin deficit could be repaired by:
- a transfer from CWF to admin, approved at a General Meeting. This is income to admin and an expense to CWF and therefore DOES affect equity. But often this means CWF levies need a catch up eventually.
- increased levies.
- expenditure cuts (hard to do).
This post appears in Strata News #755.
Matthew Faulkner Matthew Faulkner Accountancy PTY LTD E: matt@mattfaulkner.accountants P: 0438 116 374