CMCA - Certified Manager of Community Associations Budgeting and Reserve Studies Questions and Answers Flashcards

Which budgeting approach requires every expense line to be justified from scratch rather than based on last year's figures?

Answer: Zero-based budgeting

Zero-based budgeting starts each line at zero and requires justification of every cost.

An association expects 3% of owners to not pay assessments. How should this be reflected in the operating budget?

Answer: Include an allowance for bad debt or uncollectible assessments

A bad-debt allowance prevents a revenue shortfall when some assessments are not collected.

Which accounting method records revenue when assessments are billed and expenses when incurred, regardless of cash movement?

Answer: Accrual basis

Accrual accounting matches income and expenses to the period they are earned or incurred.

A reserve study funding model that pools all components into one fund and tests the balance year by year against projected expenses is called what?

Answer: Cash flow method

The cash flow (pooled) method projects total inflows and outflows to make sure the pooled balance stays adequate.

What is the main risk of an association consistently underfunding its reserves?

Answer: Special assessments, loans, or deferred maintenance later

Underfunded reserves often force special assessments, borrowing, or postponed repairs when components fail.

An update reserve study without a site visit is most appropriate when?

Answer: A recent study with a site visit exists and conditions have not changed much

A no-site-visit update refreshes financial data and assumptions when the physical inventory is still reliable.

When preparing the annual budget, which item should the manager typically gather FIRST?

Answer: Historical actual expenses and current contracts

Historical actuals and existing contracts form the factual base for projecting next year's costs.