Financial Management and Accounting
Statements and Controls
Candidates must read the three core statements - income statement, balance sheet, and cash flow statement - and understand accrual versus cash accounting, the chart of accounts, and segregation of duties. Know how to build and monitor an operating budget, prepare a variance analysis, and reconcile bank statements and tenant ledgers. Understand trust/escrow handling for tenant security deposits, accounts receivable aging, and the controls that prevent fraud (dual signatures, independent reconciliation, approval thresholds).
Traps to watch
- Accrual vs. cash: accrual records revenue when earned and expenses when incurred; cash records when money moves. A question about timing usually turns on this distinction.
- Budget variance sign: an unfavorable expense variance means actual exceeded budget; an unfavorable revenue variance means actual fell short. Don't flip the direction.
- Capital vs. expense: capitalizing a repair overstates current NOI and understates expenses; misclassification distorts both statements.
- Escrow commingling: security deposits belong in a separate trust account; commingling is a compliance failure, not just a bookkeeping choice.
Rule of thumb
Variance % = (Actual − Budget) ÷ Budget. Interpret the sign by line type: for expenses, positive is unfavorable; for revenue, negative is unfavorable.
Worked example
Budgeted repairs are $50,000; actual is $57,500. Variance = ($57,500 − $50,000) ÷ $50,000 = +15%, which is unfavorable because actual spending exceeded budget. The manager should explain the overrun (e.g., emergency HVAC replacement) and note whether it is a one-time capital-type event or a recurring operating trend.