Understanding Financials - The Bottom Line - SSKB - Strata Managers | Community Experts

Understanding Financials – The Bottom Line

As a lot owner in an owners corporation building, you are a shareholder in a business. And as a committee member, you’re on the board of directors to act in the best interest of all the ‘share holders’.

Part of that responsibility is understanding financial reports and there are two which are presented at the owners corporation budget meeting to be held within five months of the end of the financial year, June 30.

Those two reports are:

  • A profit and loss statement
  • A balance sheet

Profit And Loss Statement

A profit and loss statement provides a one year snapshot of the owners corporation financial standing.

It records all the money which has been received and all the money paid out during the course of the year.

The first line lists the gross income over the year – that is, all the money which has been paid in.

Itemised over the next lines are all the costs that have been incurred and paid during the year. It will include items such as administration fees, accountancy costs, gardening, maintenance of the building and common areas, wages for a resident unit manager, etc.

Funds held in bank accounts, such as sinking funds or maintenance funds, should be earning interest and interest earned in a year will be added as another line item.

And since your owners corporation is considered a company by the Australian Tax Office, income tax is also payable and this is the last item deducted before you reach the bottom line which will show either a profit or a loss.

Profit and Loss Statements are score sheets to help committees to see how the business performed against the projected budget.

  • Were there more expenses than had been budgeted for?
  • Was projected expenditure less than expected?

Profit and Loss Statements are a useful foundation for building the next year’s budget

Balance Sheet

A balance sheet, on the surface, looks similar to a Profit And Loss Statement, but dig below the surface and you’ll discover that a Balance Sheet provides so much more information. SSKB provides a current Balance Sheet report for every committee meeting during the year.

Balance Sheets can be complex and this article is just an overview, so we will be looking at Balance Sheets in depth in another article.

Put simply, Balance Sheets are  concerned about two things – Assets and Liabilities.

An Asset is something which belongs to the Owners Corporation and can include:

  • Debtors – lot owners who owe money
  • Cash at bank – money that is currently held in the bank
  • Investment Accounts – money that is currently held by a financial institution

A Liability is something that is owed to someone or something else. These can include:

  • Creditors – payments still to be made to suppliers for invoices that have been received and not yet paid
  • Income Tax Provision – a provision for any income tax that is due to be paid to ATO
  • GST Clearing – this is the collection of GST that has been charged on invoices or levies less the amount of GST paid out on creditor invoices that is yet to be paid to the ATO at the end of the relevant quarter

As the name suggests, a Balance Sheet should balance. This happens when the value of the assets equals the combined value of the liabilities plus shareholders’ equity but this is only the case at the end of the financial year when the books are ‘closed’.

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