Keeping track of who has paid, who is overdue, and what fees need to be allocated for specific expenses can be challenging without an efficient system. Adapted from information provided by James Ernst, a Certified Public Accountant and member of ECHO. His CPA firm, James Ernst Accounting, has been providing accounting and tax services since 1993, and he specializes in providing professional services for the homeowners association industry. If you’re interested in using accrual based accounting, find out how your HOA can adopt accrual financial statements. The Cash Basis, which is not in conformity with GAAP, records income and expenses when cash is exchanged.

Accrual Accounting:

However, homeowners can influence spending by attending meetings, voting on initiatives, or joining the board. Whether you live in a condo, townhouse, or planned community, understanding HOA fees and their role in maintaining your neighborhood is essential. Let’s explore why these fees exist, what they cover, and what you should expect as a homeowner.

Balance Sheet

Managing HOA finances is a responsibility that should never be taken lightly. The only way to know if your financial records match your bank account is to perform a bank reconciliation. You should review your bank account monthly to ensure there’s no fraud or irregular activity. How long has it been since the HOA received dues and fees from members? Conversely, does the HOA have any unpaid bills, and how old are those bills? An aging report lets you effectively track who owes you, how much they owe, and how delinquent they are for effective account management.

Your Responsibilities as an HOA Board Member

“You have to wonder if the people who made the decision to freeze these funds know anything about the tragic history of the U.S. and Vietnam … And they must not care about the many thousands of tons of severely contaminated soil that is exposing tens of thousands of people to a very serious health risk,” Rieser said. “Our foreign aid advances our own national interests, and if the Trump administration doesn’t understand that, it’s hard to know what to say,” he said. Ready to find out how we can make your job easier and elevate your community? For more tips on HOA management and streamlining operations, explore our resources or reach out today. Federal guidelines require that associations carry this coverage in order for properties to be purchased using Fannie Mae- or FHA-backed mortgages.

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.

Using the Income Statement, you can evaluate your month’s or year’s performance in fiscal terms. 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. Also known as the Statement of Income and Expense, the Income Statement shows you the association’s revenue and expenses for the period (usually a month or a year). It deducts your total expenses from your total revenue to arrive at a net profit or loss. 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.

Understanding the Pitfalls of Cash Accounting for HOAs

It can also protect your association and board from potential legal issues. Once HOA Accounting the content is complete, it’s important to regularly review and update these steps as needed. As the HOA grows and changes, so will its financial needs and processes. But funding for the effort to find and identify hundreds of thousands of missing Vietnamese war victims was cut, then reinstated, and it’s still unclear whether money is again flowing, Rieser said.

• Once a month, you need to compare your forecasted or projected budget to what’s in your bank account.
• The CTA requires many organizations doing business in the US to file beneficial ownership reports (BOIs) about the people who own or control them.
• Though it doesn’t exist to earn a profit, an HOA does earn revenue and incur expenses, as well.
• Accrual Accounting is generally regarded as the best accounting method, though the method you select will depend on what state laws and your governing documents say.

HOA accounting is more than just crunching numbers—it’s about ensuring the financial health and transparency of the community. By following best practices, investing in the right tools, and seeking professional assistance when needed, HOAs can build trust among homeowners and maintain a thriving, well-managed community. With diligent accounting, your HOA will be well-prepared to meet current needs and future challenges. As Colorado’s leading community management company, our team is well-versed in all aspects of HOA accounting.

• It’s the only method that gives you an accurate picture of your finances.
• Whether your HOA’s governing documents require it or not, it is often recommend that associations with a large cash flow get an annual audit.
• Once you pay for this expense and money changes hands, both the Cash account and the Accounts Payable account will decrease.
• As associations grow and their financial needs become more complex, transitioning to accrual accounting often becomes necessary.

It gives you a complete look at your HOA’s net worth, including how much money you have in your bank account. Poor HOA financial management can lead to a number of possible consequences both for the HOA and its board. For one thing, bad HOA bookkeeping can cause a major financial fiasco within the association. You might end up overspending and making poor financial decisions as a result of inaccurate records. Homeowners’ Associations (HOAs) play a vital role in managing residential communities, but maintaining financial transparency and stability is crucial for their success.

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. 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? We offer the two market leading community management & accounting software used in the industry. From essential reports and accounts payable best practices to webinars dealing with collections during a pandemic, Community Financials has got you covered.

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.