CCM CCM Financial Management & Budgeting 1 — Questions and Answers
Question 1: A community manager is preparing an annual operating budget for a homeowners association. Which document should they primarily reference to ensure accuracy?
- Prior year's audited financial statements (Correct answer)
- The marketing plan
- Member satisfaction surveys
- State incorporation documents
Correct answer: Prior year's audited financial statements
Prior year audited financials provide the most reliable baseline for projecting accurate income and expense line items.
Question 2: Which financial reserve is specifically set aside to fund future major repair and replacement of common area components?
- Operating reserve
- Capital reserve fund (Correct answer)
- Emergency contingency fund
- Petty cash account
Correct answer: Capital reserve fund
A capital reserve fund (reserve fund) is designated for long-term repair and replacement of major components like roofs, paving, and HVAC systems.
Question 3: When a community association's actual expenses exceed budgeted amounts mid-year, what is the BEST first step for the community manager?
- Immediately increase monthly assessments
- Prepare a variance analysis and present options to the board (Correct answer)
- Defer all vendor payments until next fiscal year
- Transfer funds from the reserve account without board approval
Correct answer: Prepare a variance analysis and present options to the board
A variance analysis identifies the root cause of the shortfall so the board can make an informed decision on corrective action.
Question 4: What is the primary purpose of a reserve study for a community association?
- To assess member satisfaction with amenities
- To project the useful life and replacement cost of major components (Correct answer)
- To evaluate vendor contract performance
- To determine marketing spend allocation
Correct answer: To project the useful life and replacement cost of major components
A reserve study evaluates major components' remaining useful life and replacement costs so the association can fund reserves adequately.
Question 5: Under standard community association financial practices, who has the authority to approve unbudgeted expenditures that exceed a defined threshold?
- The property management company acting alone
- The board of directors (Correct answer)
- Any individual unit owner
- The community manager acting alone
Correct answer: The board of directors
The board of directors holds fiduciary responsibility and must authorize significant unbudgeted expenditures.
Question 6: Which accounting method records revenue when earned and expenses when incurred, regardless of when cash changes hands?
- Cash basis accounting
- Accrual basis accounting (Correct answer)
- Modified cash basis accounting
- Single-entry bookkeeping
Correct answer: Accrual basis accounting
Accrual basis accounting matches revenues and expenses to the period they occur, providing a more accurate financial picture.
CCM CCM Financial Management & Budgeting 1
A community manager is preparing an annual operating budget for a homeowners association.
Which document should they primarily reference to ensure accuracy?