Financial Management

Handbook 7475.1 REV.

CHAPTER 6 - PHA FINANCIAL STATEMENTS

6-1. PURPOSE.

This Chapter provides guidance to PHAs in closing their books at

the end of the fiscal year and in preparing year-end financial

reports. HUD Handbooks RHA 7510.1, Low-Rent Housing Accounting

Handbook and HM G 7511.1, Low-Rent Housing Accounting Guide,

along with the other HUD development, management and financial

manuals, should be consulted for a detailed description of

accounts to be maintained and a detailed analysis of HUD

accounting requirements. This Chapter addresses four basic

areas:

\- Specific actions/accounting entries to be performed by

PHAs prior to year-end;

\- Required year-end closing entries;

\- Financial reporting requirements; and

\- Preparation of various financial reports.

6-2. PHA YEAR-END FINANCIAL CLOSING (TO BE COMPLETED PRIOR TO

CLOSING THE BOOKS).

a\. Sometime during each fiscal year a Physical Inventory of

Nonexpendable Equipment must be taken - (Low-Rent Housing

Accounting Guide, HM G 7511.1 Chapter 9, Section 2,

Paragraph 11) - and maintained for the auditors.

\(1\) The Property Record Cards and the Books of Account

should be reconciled to the inventory.

\(2\) For equipment that cannot be accounted for:

\(a\) General Ledger

Debit: Account 6120, Gain or Loss

From Disposition of Nonexpendable

Equipment

Credit: Account 1400.4, Land, Structures,

and Equipment.

\(b\) Property Ledger

\- For projects in management;

Credit: Accounts 1465.1, 1475.1, 1475.2,

1475.3 or 1475.7, as applicable.

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\- For projects in development;

Debit: Account 1410.18, Equipment

Expended

Credit: Account 1475, Nondwelling

Equipment, in development cost

ledger.

b\. On the last day of business of the fiscal year, or

shortly before, reimburse the Petty Cash Fund to the

amount authorized.

Distribute Petty Cash Vouchers to the applicable

Expense Accounts (1410.19, 4190, 4420).

c\. Reconcile Bank Statement.

d\. Take a trial balance of the Tenant Ledger Cards or

Accounts.

\(1\) Reconcile Account 1122, Accounts Receivable-

Tenants, to the trial balance.

Make adjustments for minor differences by either:

Debit: Account 1122, Accounts Receivable

\- Tenants

Credit: Account 3690, Other Income

or

Debit: Account 4590, Other General

Expense

Credit: Account 1122, Accounts

Receivable Tenants.

\(2\) Write-off all uncollectible accounts insofar as

the Operating Budget permits.

\(a\) Board Resolution approving all write-offs is

required

\(b\) General Journal entry for write-off is:

Debit: Account 4570, Collection Losses

Credit: Account 1122, Accounts

Receivable Tenants.

\(3\) For statement purposes only, all prepaid rents

should be shown in Account 2240, Tenants Prepaid

Rents.

No entry is to be recorded on the PHA Books.

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e\. Record any interest earned on savings accounts not

previously recorded.

\(1\) For PHA Interest:

Debit: Account 1162, Investments

General Fund and Security Deposit

Fund

Credit: Account 3610, Interest on

General Fund Investments.

\(2\) For interest earned on the investment of the

Security Deposits and payable to the tenants:

Debit: Account 1162, Investment General

Fund

Credit: Account 2114, Tenants

Security Deposits.

f\. Record Insurance Expense for Prepaid Insurance

Policies.

\(1\) Development Period

Debit: Account 1400.2, Development Cost

Account 1410.19, Administration

Expense Sundry

Credit: Account 1211, Prepaid

Insurance.

\(2\) Initial Operating Period

Debit: Account 1400.2, Development Cost

Account 1425/4510, Initial

Operating Deficit-Insurance

Credit: Account 1211, Prepaid

Insurance.

\(3\) Management

Debit: Account 4510, Insurance

Credit: Account 1211, Prepaid

Insurance.

\(4\) Review Insurance Register for assurance that

Account 1211, \"Prepaid Insurance\" and Account

1212, \"Insurance-Deposits\" are in agreement.

Reconcile any differences.

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g\. Take a trial balance of Account 1400.2, \"Development

Cost\", and/or Account 1400.4, \"Land, Structures, and

Equipment\". Reconcile Account 1400.2 or Account

1400.4, as applicable, to the trial balance.

h\. Review Contract Register for assurance that Account

1800, \"Contracts - Uncompleted Contracts\"; Account

1810, \"Contracts Contract Awards - Contra\"; and

Account 2112, \"Accounts Payable - Contract Retentions\"

are in agreement.

Reconcile any differences.

i\. Take a trial balance of the Tenants Security Deposits.

Reconcile Account 2114, Tenants Security Deposits, to

the trial balance.

j\. Accrue large payables.

\(1\) Account 2135 - Accrued Liabilities Salaries and

Wages.

\(2\) Account 2134 - Accrued Liabilities Utilities.

\(3\) Account 2111 - Accounts Payable Vendors and

Contractors.

Goods and services must have been received and,

therefore, a liability to pay exists.

k\. Accrue Interest Expense

\(1\) HUD obligations - 360 day year.

\(a\) Development Notes and Bonds - HUD

Debit: Account, 1400.2, Development Cost

Account, 1420.1, Interest to HUD

or Account 5610, Interest on Notes and

Bonds Payable

Credit: Account 2131.1, Accrued

Liabilities Interest Payable-

Development Notes and Bonds -

HUD.

\(b\) Administrative Notes - HUD

Debit: Account 4580, Interest on

Administrative and Sundry Notes

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Handbook 7475.1 REV.

Credit: Account 2131.2, Accrued

Liabilities-Interest Payable -

Administrative Notes - HUD.

\(2\) Non-HUD Obligations - 360 day year.

\(a\) Notes - Non-HUD

Debit: Account 5610, Interest on Notes and

Bonds Payable, as applicable

Credit: Account 2132, Accrued

Liabilities -Interest Payable

\- Notes - Non-HUD.

\(b\) Bonds - Non-HUD

Debit: Account 5610, Interest on Notes and

Bonds Payable, as applicable

Credit: Account 2133, Accrued

Liabilities -Interest Payable

\- Bonds - Non- HUD.

1\. Accrue PILOT - Refer to paragraph 6-7 of this Chapter

entitled PHA Preparation of Form HUD-52267,

Computation of Payments in Lieu of Taxes (PILOT).

Debit: Account 4520, Payments in Lieu of

Taxes

Credit: Account 2137, Payments in

Lieu of Taxes.

m\. Obtain Fiscal Agent Statement and reconcile the books

to them. Pick up interest earned on Debt Service and

Advance Amortization Fund investments.

Debit: Account 1172, Advance Amortization

Fund

Credit: Account 5230, Interest on

Debt Amortization Fund

Investments.

\(1\) Include copy of reconciliation with year-end

financials.

n\. Prepare Trial Balance of the General and Subsidiary

(Income and Expense) Ledgers.

o\. Verify that all applicable costs have been closed to

Account 1400.4, Land, Structures and Equipment\".

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Financial Management

7475.1 REV. Handbook

\(1\) For projects that have reached the end of initial

operating period during the year

Debit: Account 1400.4, Land, Structures,

and Equipment

Credit: Account 1400.3, Development

Cost -Contra.

\(2\) For projects that have reached the End of Initial

Operating Period in a prior year, but have

incurred additional cost during the current year

that was charged to Account 1400.2

Debit: Account 1400.4, Land, Structures,

and Equipment

Credit: Account 1400.3, Development

Cost -Contra.

6-3. PHA YEAR-END CLOSING ENTRIES.

a\. Close the 7500 series of Memorandum Accounts, except

Account 7580 (remains open).

Reverse all balances recorded in these accounts.

b\. Close the 3000 (Income), 4000 (Expense), 5000 (Other

Income Credits and Charges Not Affecting Residual

Receipts) and 6000 (Surplus Credits and Charges)

series of Accounts into Account 2700 (Income and

Expense Clearing Account).

\(1\) Refer to Form HUD-52596.

\(2\) In the Books of Account, the following entries

should be recorded:

\(a\) Debit: Account 3000, Operating Income

(Control), the various 3000

Subsidiary Accounts

Credit: Account 2700, Income and

Expense Clearing Account.

\(b\) Credit: Account 4000, Operating Expense

(Control), the various 4000

Subsidiary Accounts

Debit: Account 2700, Income and Expense

Clearing Account.

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\(c\) Debit: Account 5210, Premiums on Bonds

Account 5220, Bond Purchase

Discount Account 5230, Interest

on Debt Amortization Fund Invest

ments. Account 5240, Interest on

Payments for Off Site Utilities

Credit: Account 2700, Income and

Expense Clearing Account.

\(d\) Credit: Account 5610, Interest on

Notes and Bonds Payable

Account 5640, Bond Redemption

Premiums

Debit: Account 2700, Income and Expense

Clearing Account.

\(e\) Debit or Credit: Account 6010, Prior Year

Adjustments Affecting

Residual Receipts or

Deficit;

Account 6020, Prior Year

Adjustments- Not Affecting

Residual Receipts;

Account 6110, Gain or Loss

from Disposition of Real

Property;

Account 6120, Gain or Loss

from Disposition of Non-

expendable Equipment as

applicable to close;

Debit or Credit: Account 2700, Income and

Expense Clearing Account, as

applicable.

\(3\) All of these entries may be combined in one

General Journal entry.

c\. Make provision for Reserve or Reduction of Reserve.

Refer to Form HUD-52599 for computation of Residual

Receipts or Deficit.

\(1\) Provision for Reserves.

\(a\) Must have Residual Receipts.

\(b\) The provision cannot cause the balance of

Account 2820, \"Reserved Surplus - Operating

Reserve-Locally Owned Projects\", to exceed

the \"Maximum Reserve

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Allowable\", Form HUD-52564, page 2, part 1, Line

01 of next year\'s Operating Budget.

\(c\) Refer to Forms HUD-52596 and HUD-52599.

\(d\) Debit: Account 7010, Provision for Operating

Reserve - Locally Owned Projects

Credit: Account 2820, Reserved

Surplus -Operating Reserve

Locally Owned Projects and

Debit: Account 2810, Unreserved Surplus

Credit: Account 7010, Provision

for Operating Reserve-Locally

Owned Projects

\(2\) Reduction of Reserves

\(a\) Must have Deficit.

\(b\) Account 2820, Operating Reserve - Locally Owned

Projects, cannot be reduced below zero.

\(c\) Refer to Forms HUD-52596 and HUD-52599.

\(d\) Debit: Account 2820, Reserved Surplus

\- Operating Reserve Locally Owned

Projects

Credit: Account 7010, Provision

for Reserve Locally Owned

Projects and

Debit: Account 7010, Provision for Reserve-

Locally Owned Project

Credit: Account 2810, Unreserved Surplus

d\. Residual Receipts after Provision for Reserves.

\(1\) Account 2820, Reserved Surplus - Operating Reserves -

Locally Owned Projects, must be at the Maximum

Authorized (see step 2b. above).

\(2\) Debit: Account 2840, Cumulative HUD Annual

Contributions

Credit: Account 2118, Accounts Payable

\- HUD.

e\. Deficit after the Application of the Operating Reserve.

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Handbook 7475.1 REV.

\(1\) Account 2820, Reserved Surplus - Operating Reserves -

Locally Owned Projects, must have been reduced to

zero.

\(2\) In next year\'s year-end Financial Statements, this

deficit must be shown on line 650 of Form HUD-52599.

\(3\) If at all possible, this deficit should be reflected

on Line 820, page 2 of the next fiscal year\'s budget,

Form HUD-52564.

f\. Close Account 2700, \"Income and Expense Clearing Account\",

and Account 7010, \"Provision for Operating Reserves-Locally

Owned Projects\", into Account 2810, \"Unreserved Surplus.\"

g\. Close Accounts 8020, \"Contributions Earned - Operating

Subsidy-Current Year\", and 8021, \"Contributions Earned -

Operating Subsidy Prior Year(s) Adjustment\", into Account

2840, \"Cumulative HUD Annual Contributions\".

Debit: Account 8020, Contribution Earned-

Operating Subsidy - Current Year

Account 8021, Contributions Earned

Operating Subsidy - Prior Year(s)

Adjustment

Credit: Account 2840, Cumulative

HUD Annual Contributions.

h\. Set up Annual Contributions for the amount of contribution

reflected on Form HUD-52266, line 3.

Debit: Account 1176, HUD Annual Contributions

Receivable

Credit: Account 2840, Cumulative

HUD Annual Contributions.

6-4. REPORTING REQUIREMENTS.

Exhibit 6-1 provides a \"Schedule and Distribution of Required

Financial Reports\" which includes (a) a description of financial

reports to HUD, (b) the frequency of reporting, (c) the number

of copies to be submitted, and (d) the office to which the

report shall be submitted.

Specific instructions for submission of financial reports are

referenced in Chapter 13, Handbook RHA 7510.1, Low-Rent Housing

Accounting Handbook, with one noted Reporting Requirement

exception. Report of Tenants Accounts Receivable, Form HUD-

52295, shall be submitted semiannually and annually in

accordance with paragraph 6-5 of this Chapter.

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6-5. PHA SUBMISSION OF FORM HUD-52295- REPORT OF TENANTS ACCOUNTS

RECEIVABLE.

a\. Purpose.

This paragraph establishes PHA submission requirements of

Form HUD-52295, which differ from the instructions

contained in HUD Handbook RHA 7510.1, Low-Rent Housing

Accounting Handbook.

b\. Submission Requirements.

\(1\) A separate report shall be prepared for (a) PHA owned

rental projects under the same contract and (b)

Section 23 leased projects under the same contract,

even though combined with other projects for

collection purposes.

\(2\) \"Report of Tenants Accounts Receivable,\" Form HUD-

52295, shall be submitted semi-annually and annually,

unless otherwise requested by the HUD Field Office.

More frequent reports and greater detail may be

requested by the Field Office in cases where the PHA

is experiencing a serious rent collection problem.

The Field Office may choose to accept annual reports

on a case-by-case basis, if it is determined that the

PHA is not experiencing a rent collection problem. A

PHA which believes its collection experience evidences

satisfactory performance, may request a waiver of

semi-annual reporting.

\(3\) Other reports or summaries may be submitted in lieu of

Form HUD-52295, provided prior approval is obtained

from the Field Office and such other reports or

summaries contain substantially the same information

as that required in Form HUD-52295.

c\. Documentation.

Any requests for waivers of semi-annual reporting and

acceptability of reports other than the prescribed report

format shall be documented by letter from the PHA to the

Field Office. Requests for more frequent and/or increased

reporting by the PHA shall also be documented by letter

from the Field Office to the PHA.

6-6. PHA PREPARATION OF FORM HUD-52267 - COMPUTATION OF PAYMENTS IN

LIEU OF TAXES (PILOT).

a\. Pilot payments are determined in accordance with the terms

of the Cooperation Agreement(s) entered into by the PHA and

the

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Financial Management

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local governing body(ies). The amount payable is

limited to the lesser of (a) 10 percent of shelter

rent or (b) the amount prescribed by state law.

b\. Lines 1 through 7 represent the components of shelter

rent and result in a calculation of \"shelter rent

charged\" in determining PILOT.

c\. Lines 9 through 13 calculate \"shelter rent collected\"

and are used in lieu of Lines 1 through 8 when this

basis for calculating PILOT is specified in the

Cooperation Agreement.

d\. Line 14 shows the approximate amount of full real

property taxes that will assure compliance with the

provision of the Act which limits PILOT to the amount

prescribed by state law.

e\. Lines 15 and 16 compare the amounts described above in

order to determine the amount to be used in making

PILOT payments.

f\. Detailed instructions for the preparation of Form

HUD-52267 are on the reverse side of the Form and in

HUD Handbook RHA 7510.1, Low-Rent Housing Accounting

Handbook.

6-7. PHA PREPARATION OF FORM HUD-52295 - REPORT OF TENANTS

ACCOUNTS RECEIVABLE.

Reserved.

6-8. PHA PREPARATION OF FORM HUD-52595 - BALANCE SHEET.

a\. All amounts on this report should be taken from the

general ledger after all closing adjustments have been

prepared and recorded.

b\. In each distribution of Annual Financial Statements

include copies of all closing Journal Vouchers and

copies of any other Journal Vouchers recorded during

the fiscal year which affect Account numbers 2700,

2810, 6010, 8011, 8021 and 8114.

c\. In each distribution of Annual Financial Statements

include a copy of the confirmation on fiscal agents

Accounts.

d\. Detailed instructions for the preparation of Form

HUD-52595 are on the reverse side of the Form and in

HM G 7511.1, Low-Rent Housing Accounting Guide.

6-9. PHA PREPARATION OF FORM HUD-52596 - STATEMENT OF INCOME AND

EXPENSE AND CHANGES IN ACCUMULATED SURPLUS OR DEFICIT FROM

OPERATIONS.

a\. The amounts on Lines 1, 7 and 20 or 21 are taken from

Lines 140, 570 and 770 of Form HUD-52599.

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b\. The amounts on lines 2, 3, 4, 5, 6, 9, 10, 11, 12, and

13 will come from the general ledger prior to closing.

c\. The amounts on Lines 17 and lines 25 or 29 are taken

from Lines 24 and 28 or 32 of Form HUD-52596, prepared

for the end of the previous fiscal year.

d\. Any adjustments to surplus furnished by the Office of

Finance and Accounting (OFA) should be reflected on

Lines 18 and 26 or 30.

e\. The amounts on Lines 24, 28 or 32 and Line 37 must

agree with the amounts reported on Lines 87, 88, or 97

of Form HUD-52595 (dated 2-85).

f\. There are detailed instructions for the preparation of

Form HUD-52596 in HM G 7511.1, Low-Rent Housing

Accounting Guide.

6-10. PHA PREPARATION OF FORM HUD-52598 - ANALYSIS OF

NONROUTINE EXPENDITURES.

a\. The totals in Part I must agree with the amounts on

Lines 530, 540, 580, 590 and 600 of Form HUD-52599.

b\. The budget information for Part II is taken from the

Operating Budget, Form HUD-52567 - Schedule of

Nonroutine Expenditures.

c\. The actual cost information must come from PHA records

which account for the cost of each item of nonroutine

expenditures by individual item.

Note: A separate form must be prepared for each

Section 23 Leased Project.

If an Annual Contributions Contract includes both

Conventional and Section 23 Leased Projects, a

separate form must be prepared for the Conventional

Projects.

d\. There are detailed instructions for the preparation of

Form HUD-52598 in HM G 7511.1, Low-Rent Housing

Accounting Guide.

6-11. PHA PREPARATION OF FORM HUD 52599 - STATEMENT OF OPERATING

RECEIPTS AND EXPENDITURES.

a\. Be sure to complete all items in the heading,

especially the number of unit months of availability.

Homeownership and/or Section 23 Leased Projects

require a separate HUD-52599.

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b\. Complete first two columns (Budget Amount and Budget

PUM) by copying the amounts from the latest approved

Operating Budget for the fiscal year for which the

report is being prepared.

c\. Using the income and expense ledgers as a source,

enter the final balances of these accounts in the last

column (actual amount). Be sure that actual amounts

are used. Do not round these figures.

d\. The general ledger will be the source for all other

amounts shown in the last column not obtained from c.

above.

e\. Calculate PUM amounts for the third column (Actual

PUM) by dividing the amounts used in the last column

(c. and d. above) by the number of unit months

availability.

f\. Section 23 Leased Projects - Stop at Line 680 and

complete Form HUD-52981 before completing the

remainder of this form.

g\. All Projects - Complete Form through Line 760. Insert

the Maximum Operating Reserve from Line 01 or 02 of

Form HUD-52564 for the subsequent fiscal year, on Line

800\.

h\. Compare the amount recorded on the general ledger in

Account 2820, prior to closing, and insert on Line 770

the lesser of the difference between the previous

balance in Account 2820, 2821, or 2823 as applicable,

and Line 800 or the amount on Line 760. Line 780 is

then calculated. (ff line 760 is a deficit, the

reserve level can not be reduced to less than zero.)

i\. Lines 810 and 820 are taken from the trial balance of

Tenants Accounts Receivable at the end of the

reporting period.

j\. Detailed instructions for the preparation of Form HUD-

52599 are on the reverse side of the Form and in HM G

7511.1, Low-Rent Housing Accounting Guide.

6-12. RECORDS RETENTION.

a\. PHAs are required to maintain certain project,

application, tenant, personnel and financial records.

Depending on the nature of the records, disposition

may or may not be recommended.

b\. Exhibit 6-2 provides a suggested method of filing and

recommended period for retention of various PHA

records and reports. The suggested method of filing

may not apply to all PHAs. PHAs may be subject to

more stringent requirements as a result of state or

other legal requirements. It has been prepared

primarily for small PHAs.

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