Practical guide
Handling expenses spanning two financial years
Every property manager eventually deals with invoices dated in December but paid in January, maintenance contracts that span a renewal date, or extraordinary works started in one financial year and completed in the next. Italian civil law requires the annual financial statement to be prepared on a cash basis, yet established practice and the duty to inform owners correctly demand careful attention to how these expenses are allocated in time. Getting the allocation wrong triggers disputes at the assembly, unexplained differences between one statement and the next, and in extreme cases a legal challenge to the approval resolution. This guide explains how to correctly handle the transition between financial years, what to include in the explanatory note, and how to preserve the transparency required by law.
The cash basis principle in condominium statements
Article 1130 bis of the Italian Civil Code establishes that the condominium financial statement is prepared on a cash basis: it records income and expenses actually settled during the financial year, not commitments made or invoices received. This means an invoice dated 28 December but paid on 10 January of the following year belongs, for statement purposes, to the year in which the money left the condominium account, not to the year the invoice was issued.
The cash basis principle makes the statement easier for owners to read, since it reflects the actual movement of the condominium bank account, but it requires the manager to check payment dates carefully in the days around the year end closing. A payment made a few days early or postponed to the following year can shift significant sums from one statement to another, and this always needs to be explained to owners, not simply absorbed as a technical detail.
When an expense starts in one year and closes in the next
The most frequent case involves supply or maintenance contracts whose term does not match the condominium management year: a stairwell cleaning contract running from September to August of the following year, an annual insurance policy taken out mid year, or extraordinary works approved in one financial year but carried out and invoiced across the year end.
Two situations should be distinguished. If the contract already provides for separate periodic instalments (monthly or quarterly), each instalment is recorded on a cash basis when paid, with no need for proportional allocation by days. If instead a single payment covers a period spanning two financial years, such as an annual insurance premium, this should be flagged explicitly in the explanatory note, clarifying that the amount paid also covers months of the following year, so owners understand why that line appears higher than usual.
For extraordinary works approved with progress based payments, each payment made against a work progress statement should be recorded in the financial year in which it was actually paid, while keeping a clear link in the documentation to the original resolution and approved estimate, so the expense never appears disconnected from an assembly decision.
The explanatory note: what it must contain
The explanatory note, also required by article 1130 bis, is the tool the manager uses to explain significant differences between the statement's line items and the approved budget, as well as situations that call for particular clarification. Expenses spanning two financial years fall squarely into that category: it is enough to state, for each affected line item, the period actually covered by the payment and why the amount does not match a single year of service.
A well written explanatory note prevents most disputes at the assembly: an owner who sees a maintenance expense doubled compared to the previous year, without explanation, is likely to demand clarification or contest the approval; the same figure, accompanied by a line stating it covers the period from September of year X to August of year X plus 1 due to contract renewal, is understood and approved without friction.
Transparency and continuity across successive statements
A good financial statement is not read in isolation: it is read in continuity with the previous year's statement and with the budget approved for the current year. When an expense crosses the boundary between two financial years, it is important for the manager to keep the summary reports consistent, avoiding duplication or omissions, especially during the handover between one manager and the next, a moment when these misalignments tend to surface most often.
Property management software designed for condominiums, such as AmministraPro, helps concretely on this front: recording payments by actual settlement date, automatically linking invoices, progress statements and resolutions, and generating the explanatory note from the deviations detected reduce the risk of human error at the most delicate moment of the accounting cycle, namely closing the financial year and preparing the statement to be submitted to the assembly.
Frequently asked questions
Does a December invoice paid in January belong to the old or the new financial statement?
It belongs to the financial year in which the payment was actually made, not the year the invoice was issued. The condominium statement follows the cash basis principle set out in article 1130 bis of the Italian Civil Code: what matters is the date the money left the condominium account, not the date on the invoice. If payment happens in January, the expense will appear in the new financial year's statement, and this should be noted in the explanatory note if it creates a significant deviation from the approved budget.
How should an annual contract covering months of two different financial years be recorded?
If payment is a single upfront amount for the whole contract period, it is recorded on a cash basis in the year it was paid, but the explanatory note should clearly state that the amount also covers months of the following year. This prevents owners from interpreting the entire figure as referring only to the current year and allows a correct comparison in subsequent years, when that same expense may not recur at the same amount or in the same period.
Can failing to explain an expense spanning two financial years lead to the statement being challenged?
Yes, if the deviation is significant and left unexplained. Case law has repeatedly held that an unclear statement, or one containing unjustified line items, undermines an owner's right to correct information, which can be grounds for challenging the approval resolution before the courts. A complete explanatory note that addresses every relevant deviation, including expenses spanning two financial years, substantially reduces this risk.
Do extraordinary works paid through progress statements follow the same rule?
Yes, each work progress payment is recorded on a cash basis in the financial year the payment was actually made, even if the works are a single project continuing past the year end. It remains important to keep a clear documentary link between each payment, the corresponding progress statement, and the resolution that approved the works, so owners can trace the entire extraordinary expense across multiple annual statements.
Can condominium management software help avoid mistakes with this type of expense?
Yes, in concrete ways. A platform like AmministraPro records payments by actual settlement date, automatically links invoices, progress statements and assembly resolutions to the relevant expense line, and supports the manager in drafting the explanatory note by highlighting deviations between budget and actuals. This reduces the risk of manual errors precisely at the most delicate moments, such as closing the financial year and handing over between managers.
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