Which term refers to funds reserved from operating cash flow for future capital improvements?

• A. Capital Reserves
• B. Working Capital
• C. Operating Income
• D. Cash Equivalents

Answer: (A)

Funds reserved from operating cash flow for future capital improvements are called capital reserves. The idea is to set aside cash specifically to cover big, infrequent expenditures like roof replacements, elevator upgrades, or major system overhauls, so the property can maintain value without disturbing day-to-day operations or financing plans. This differs from working capital, which covers the ongoing liquidity needed to run the property on a daily basis. It also isn’t the same as operating income, which measures earnings from core operations before financing and taxes, nor is it cash equivalents, which are short-term, highly liquid investments rather than earmarked reserves. Capital reserves directly address planned capital needs, making it the correct term.