Basic HOA Accounting: A Guide For HOA Board Members CSM
Homeowners associations, while non-profit, are still recognized as corporations by the federal government. We selected one of the few national banks that specializes in HOAs and Condo banking to work with. For a smaller community this can be all that is needed along with a willing volunteer to handle the accounting.
- These principles are the rules established so that every business prepares their financial statements the same way.
- In the end, you want to make your community a beautiful and financially sound place to live for all residents.
- When looking into property management companies, it is important to look for a company with a strong financial background.
- You will know how much you are spending on a given expense which will allow you to make a decision on whether or not to cut back on it the following period.
- You may want to review the scope of each of the three different reports, as well as contact your HOA management company.
Effect on HOA’s Financial Statements
Let us assume that a homeowners association is supposed to receive $2,000 a month in assessments. Let us also assume that it has vendors, all of which do work monthly and all of which get paid monthly. Let’s also assume that in one month 25% of the homeowners paid assessments late – they paid the next month, and that all of the vendors were paid monthly. Below homeowners association accounting is how the income statement for this association would look using both methods of HOA accounting. As you can see, under the Cash Method of HOA Accounting it would appear that the association lost money in the first month, and made a profit in the second month. Using Cash HOA Accounting makes it difficult to see if income and expenses are as expected.
HOA Accounting Software
Generally, there are five financial statements HOAs should prepare — Balance Sheet, Income Statement, General Ledger, Cash Disbursements Ledger, and Accounts Payable Report. Accrual Accounting for HOA communities is considered by most experts to be the best basis of accounting. This is because the Accrual method gives you a more accurate picture of your financial situation. Since you report income and expenses as they occur instead of when money moves, you immediately know how much money you have. As a Board member, do you currently get access to the software where your community data is stored? Do you have a library of prior financial statements you can view online?
The Importance of Proper HOA Accounting
With CINC, creating a budget, and maintaining financial transparency is a breeze. The Cash Disbursements Ledger is not limited to checks issued by the association, though. You can also record transactions made in cash to keep track of the cash outflow of your HOA. In contrast, the Cash Basis might lead you to draw inaccurate conclusions about the state of your HOA finances. Because you don’t record expenses as you incur them, you might end up spending more money than you actually have.
The Three Types of HOA Accounting Methods
Under the accrual basis of accounting, all HOA financial activities are reported on the financial statements. This type of accounting is usually considered superior because it offers the most complete overview of the HOA’s financial status compared to the modified accrual or cash methods. Using the accrual basis, the association reports revenue when it earns them, regardless of when money actually changes hands. When using modified accrual accounting, it is important to understand how your financial statements will turn out. With the modified accrual basis method, the amounts on the balance sheet will equal the amounts for Prepaid Assessments and Assessments Receivable.
The Complete Guide to HOA Financial Management
As a board member, you may opt for either one of these reports annually or not; it really is up to you, as they are not necessarily required. But, having some understanding of these various reports and what they entail will help you make that decision when all is said and done. Implement scalable software to give your team enough bandwidth to manage twice as many associations. Give homeowners 90 days or more to remedy the situation before involving collections. If they respond to notices with defiance or anger, they are not as likely to voluntarily pay. If they are not making any payments at all or have stopped responding, it may be time for collections.
What Is an HOA Financial Statement?
CSM provides HOA accounting and back-office support to hundreds of associations across the country. Our services help save associations thousands of dollars each year and reduce the workload of the volunteer Board. Connect with us and learn how a partnership could benefit your association. Use CINC Systems’ software to solidify vendor relationships with more accurate data entry, faster payments through automation, improved communication thanks to HOA website portals, and streamlined invoicing and tracking. Maintain healthy HOA vendor relationships to keep your management company and the communities you serve at the top of their client list.
- Also known as the basis of accounting, the accounting methods dictate the timing at which you record your association’s financial transactions.
- Every significant deviation between actual income and expenses and budgeted income and expenses should be understood.
- This report lets you know how much you owe, to whom you owe money, and any applicable due dates.
- For every report, the amounts recorded as a liability or asset should equal the total balance on your association’s balance sheet.
HOA Collections Processing
