There are certain financial reports you’ll need on a monthly basis, including the balance sheet, statement of income and expense, cash disbursements ledger, and the accounts payable report. The following reports are necessary for understanding how much money is coming into and going out of your homeowners association’s accounts. The accrual basis of accounting is generally recommended for homeowners associations as it meets the requirements of the California Civil Code. With the accrual basis, all revenue and expenses appear in the HOA’s Income Statement and amounts are comparable to the budget. The Balance Sheet will also include Accounts Payable, Prepaid Assessments, Assessments Receivable, and totals for each that agree with detailed reports for easier management of the association’s finances. Under the accrual basis of accounting, all HOA financial activities are reported on the financial statements.
What Are HOA Accounting Services? Everything You Need to Know
Additionally, there is plenty of available software that can assist self-managed communities. Some offer full-service HOA management features, while others focus on specific modules. There’s no shame in asking for help, especially when it comes to a subject as difficult and confusing as accounting. Many HOA management companies offer accounting and other financial services as part of a package deal. If a certain expense spiked compared to a previous month or year, this spreadsheet will tell you that in a single look. From there, you can investigate further or ask your HOA management company what went wrong.
An HOA Accounting Guide For HOA Board Members
This gives your HOA an even better idea of your neighborhood’s financial situation. That means your HOA can plan events and maintenance with confidence. On the management side, we’re here to help your neighborhood achieve its goals. We’ll help your HOA find the best ways to promote the property value of the homes in your neighborhood. We’re able to get your HOA in touch with some of the best vendors on the market. And most importantly, we’re quick to respond and provide emergency services 24/7.
The Real Truth Behind An HOA Investor Community
If so, it is relatively inexpensive to hire an accountant as needed to prepare balance sheets. Doing this ensures that all the information will be completed in a timely manner. It also removes the need to take time out of community volunteers’ busy schedules. This alone relieves some of that stress from the board members as well. HOA accounting is probably one of the most complex, and most important, responsibilities of the association board. Preparing financial reports on a regular basis is important for many reasons.
- The truth is that homeowner’s associations (HOAs) are responsible for this.
- The accrual basis method means the association records transactions daily, weekly, and monthly it incurs them.
- 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 final method, modified accrual accounting, is simply a combination of the other two methods.
- Because the annual operating budget must be prepared using the accrual basis, the Income Statement should follow on the same basis.
- Keep in mind that there are certain bankruptcy laws that protect bankrupt homeowners.
So, if they need to hire a yard service or pool maintenance crew, they can do that. This gives them the ability to help the HOA stay organized and prevent overspending. This is the most basic financial service you could have a CPA do. The CPA will compile the financial records and use basic accounting to make sure the financials were kept correctly.
How Often to Prepare Financial Statements?
These statements typically include the income statement, balance sheet, and cash flow statement, providing a comprehensive overview of the association’s financial health. Using the modified accrual basis method, the association reports revenues when it earns them, just as with the accrual basis. This means the association reports them as it pays for them, not when it incurs them. When an elected community member self prepares financial statements, make sure that there is a backup of all financial records. A homeowners association functions in very much the same way as any business organization.
With the modified accrual basis method, the amounts for Prepaid Assessments and Assessments Receivable will be the same as the amounts on the Balance Sheet, just as with the accrual basis method. If unpaid invoices appear under Accounts Payable, the amounts will differ from those recorded on the Balance Sheet. This is because the recording of expenses follows the cash basis and not the accrual basis.
If it is mid-term, you’ll want to look at the termination paragraph of the contract. The first place to start your HOA accounting transition process is for your Board to have reviewed our proposal and our service agreement, had your questions answered and decided to work with us. You may be skeptical of working with a company not located in your area. However, you already receive a lot of remote services from credit card companies, utility companies and banks. Besides the mailed statements and late letters, written correspondence to owners in the form of Annual meeting notices are reviewed and approved by a Board member prior to sending.
It is widely used among homeowners and condo associations since it provides you with a more accurate view of your finances. Additionally, this HOA accounting method is the only one that conforms with the Generally Accepted Accounting Principles (GAAP). Accurate and regular financial statements are the foundation of sound HOA accounting.
This involves assessing expenses, forecasting financial needs, and ensuring the association has the funds to cover its operations and planned projects. The finance department will then get the bank statements and go over the deposits and checks. The finance department’s main goal is to maintain an accurate, consistent record of the association’s financial transactions. This includes the same services as a compilation and also has the CPA take an analytical look at the association’s financial records.
It’s important for the homeowners association to retain final authorization over replacement and transactions. Many board members misunderstand their role when it comes to homeowners association accounting. This becomes a big problem when a financial issue you must handle arises. It’s important to become well-versed in all accounting aspects to better perform your duties in an HOA. So do the financial needs of the community, as it relates to its goals and its size.
