You’ll see the association’s assets minus the liabilities, which gives you the net worth. Assets may include cash, amounts owed, remaining values on the insurance that’s unused, and liabilities. HOA Accounting One of the best homeowners association accounting rules to adopt is to exercise internal controls. That means not letting a single person have control over every financial department. Ideally, the person who writes the association’s checks should be different from the person handling receivables. Your accounts payable report details all of your association’s payables.
The Importance of Proper HOA Accounting
Instead, the person who writes the association’s checks should be different from the person in charge of managing receivables. Similarly, checks addressed to the HOA should go directly into the proper bank account. Managing HOA finances is a responsibility that should never be taken lightly. Understanding the basics of HOA financial management and accounting is the first step in helping the board to make sound decisions, improve the bottom line, and gain trust and confidence from homeowners.
How Transactions are Recorded under the Accrual Basis
Using the cash basis, the association reports revenues when it receives them, not when it earns them. The cash basis accounting method does not include Assessments Receivable or Prepaid Assessments accounts on the Balance Sheet. Recording of expenses happens when the association pays for them, not when it incurs them. A homeowners association functions in very much the same way as any business organization.
- If you still need help with your HOA financing and budgeting consider subscribing to our weekly blogs.
- By frequently reviewing your bank statements and reconciling them with the HOA records you’ve kept, you can follow up faster with residents who haven’t paid their dues and fees.
- Your HOA’s general ledger is your tool to keep track of the association’s financial picture.
- Know the Law – Board members should familiarize themselves with their state laws in regards to managing association finances.
- As much as you’d want it to be smooth sailing from here, the truth is that HOA accounting is a subject that takes a lot of time and effort to master.
Additional Services
Each accounting method comes with unique advantages with a different effect on HOA finances. Thus, it’s important for board members to understand which method the association will use. Financial statements are written records of the association’s financial transactions. Generally, there are five financial statements HOAs should prepare — Balance Sheet, Income Statement, General Ledger, Cash Disbursements Ledger, and Accounts Payable Report.
- The accounts payable report shows unpaid expenses and tells the homeowners association what expenditure obligations happened within the month.
- The ideal tech option will be designed from the ground up for the HOA space and available as part of a comprehensive community management suite.
- The CPA will also inspect the homeowners association’s contract for mistakes.
- If unpaid invoices appear under Accounts Payable, the amounts will differ from those recorded on the Balance Sheet.
Legal Rights Of Homeowners In HOA Communities And FAQs
Enlisting the help of professionals to streamline your processes and ensure best practices are followed is highly recommended. Seeking expert accounting input will enable you to spend more time engaging with the community that you represent. Most HOAs use the Accrual Basis, as it is generally thought to give the most accurate picture of your association’s actual financial condition.
Perhaps no aspect of records management causes more uncertainty than determining how long to keep different types of documents. While some records clearly need permanent retention, others can – and should – be disposed of after appropriate periods. Developing a clear retention strategy helps associations maintain necessary documentation while avoiding the burden and liability of keeping unnecessary records. This information must be carefully collected, verified, and submitted to FinCEN’s secure database. While this data isn’t subject to member inspection rights, boards must still maintain accurate records to ensure compliance and handle updates appropriately. Assessment collection is one of the most critical aspects of financial oversight.
Open discussions about finances should be held regularly, and not just between board members. After all, each member must pay dues, so each member should be informed about where that money is being spent. Board members are encouraged to be transparent about all relevant financial transactions, and be open about results and outcomes, even if they aren’t all positive. Accounting can be a challenging thing for HOA communities to master. Board members are volunteers, and while they work very hard to serve their community, most feel apprehensive about managing such a significant amount of money. As an HOA Board Member, you must have a basic understanding of your association’s accounting and finances, but in-depth accountancy can be complex and overwhelming.
Board members have a responsibility to understand financial interim statements to guide the association’s financial course. This job can be complicated by inaccurate or incomplete financial reports. Poor reporting can make an already immense obligation harder to manage. Therefore, it’s important for all board members to know how to understand and analyze financial reports. This way, they can prepare the association for maintenance, repairs, homeowner bankruptcy, and even financial dishonesty. The accrual basis method will have a significant effect on your HOA’s financial statements.
- Neither option is ideal, and the latter option never sits well with owners.
- Then we will mail out a welcome letter to owners with payment options, our contact info and how owners can set up online access.
- Fidelity bonds are insurance policies put into place to provide the HOA with protection from fraud and theft by the people handling the association’s money, including board members and HOA employees.
- However, managing your association’s finances doesn’t have to be difficult.
You’ll use your general ledger to build the HOA’s financial statements. Using this method, you record payment receipts during the period you receive them, as opposed to when you earn them. Additionally, the cash basis method does not include Assessments Receivable or Prepaid Assessments accounts on the statement of financial position.
Accrual Basis of Accounting
- Financial reporting is an essential component to serving as HOA treasurer.
- When an association uses the cash accounting method, it is especially important to consider the long-term.
- Since it does not account for pending expenses, it may give a misleading view of financial health.
- Generally, there are five financial statements HOAs should prepare — Balance Sheet, Income Statement, General Ledger, Cash Disbursements Ledger, and Accounts Payable Report.
Our state of the art online systems provide transparency, increased control and enhance owner trust. No organization can work smoothly without the proper management of its financials. If you want to have a prosperous and successful association, master these aspects of accounting.
