Because HOAs are non-profits and usually tax-exempt, you most likely won’t owe money. The end of the summer might sound like it’s too early to start setting your budget for next year. This comprehensive guide breaks down the essentials of HOA accounting, helping you stay organized and in control. The key benefits include improved accuracy, reduced administrative work, enhanced transparency, and better long-term financial planning. HOA violation fines are designed to maintain community standards and protect property values. Traditional property management is becoming a costly and inefficient burden for many HOAs.
- Additionally, members should have access to a detailed breakdown of actual expenses, including what was spent on reserves, capital projects, repairs, and real estate taxes.
- Then look at the Check Register to see how many checks were issued during the month.
- However, this cash flow information can be obtained from the other financial information that should accompany the financial reports.
- However, you already receive a lot of remote services from credit card companies, utility companies and banks.
- Without a solid accounting and bookkeeping system, HOAs can face mismanaged budgets, overdue payments, and frustrated homeowners.
- Your HOA’s general ledger is your tool to keep track of the association’s financial picture.
Best Practices for HOA Accounting
The entire community association becomes ineffective if there is improper handling of finances. Timely reports also help them effectively allocate funds for projects and maintenance. It is vital to ensure that your HOA or condominium board is following industry best practices where HOA accounts payable are concerned. Keeping track of all the expenses is hard work, and knowing what they are is often half the battle. A good way to keep track of your income and expenses over the course of a 12-month period is to create an HOA accounting spreadsheet. The HOA balance sheet compares your association’s assets against your liabilities and owner’s equity.
What Are the HOA Financial Statements?
However, these charges must be demonstrably linked to the specific request – they can’t be used as a revenue source or deterrent to record access. Many associations find success with a clear fee schedule that’s communicated to members in advance and applied consistently across all requests. One of the most frequent sources of conflict in records management is the question of fees. HOA Accounting While North Carolina law allows associations to charge “reasonable” fees for record production, determining what’s reasonable isn’t always straightforward.
How Often to Prepare Financial Statements
An asset section of the Balance Sheet titled Assessments Receivable appears. As the association receives payments, the cash balance increases while Assessments Receivable decreases or Prepaid Assessments increases. To make a great plan, it is important to have all the information possible. Reliable, consistent, and transparent financial statements not only help the HOA board of directors make well-informed decisions. It also supports community health by allowing all community residents and stakeholders to be a part of the team. Keeping members in the dark only promotes mistrust and working with inadequate or no financial information can lead to dwindling reserves for community upkeep and new projects.
Annual financial statements, which cover the financial period for the year, are also customary. Homeowners have the right to see how their HOA fees are being used. Boards must provide accurate, detailed financial reports that outline income, expenses, and reserve fund balances. All revenues of the association are reported when received, not when earned.
Tier 3 – Industry Software
Expenses of the HOA are reported when paid, not when incurred – the timing is the same as for the Cash Basis. Homeowners associations, while non-profit, are still recognized as corporations by the federal government. We will start setting up your community in our software after we receive a signed agreement and our on-boarding checklist with your answers to questions like your tax ID, fiscal year end, etc. Next, the timing for notification depends on your current management agreement – has it expired, is it ending at the end of the month?
- At the same time, an asset titled “Assessments Receivable” is reported on the Balance Sheet.
- You may only record expense accounts when actual money has been paid, regardless of when they were incurred.
- But, having some understanding of these various reports and what they entail will help you make that decision when all is said and done.
- This job can be complicated by inaccurate or incomplete financial reports.
- They also promote transparency between the board and members or it can also be a law requirement.
- Choosing which HOA accounting method to use is an important decision that can significantly impact your HOA’s success.
However, if you need full verification and compliance checks, an audit is the best choice. This guide explains what an HOA audit is, why it’s necessary, and the different levels of financial review available. Your HOA will achieve success when its financial health is maintained.
The community manager must review all invoices for accuracy and approve invoiced work prior to payment. Invoices should then be entered into the accounting system, and checks would need to be issued by the accounts payable department. The treasurer of the association or the community manager would then review invoices or an open item payable report prior to authorizing signature. The community manager’s finance department should receive the bank statements and review the deposits and checks issued, to reconcile the cash position on a monthly basis. The primary function of the finance department is to achieve an accurate and consistent record of information on financial transactions of the organization. The financial statements and all supporting documentation should be given to the association’s directors for their review on a monthly basis.
- Each accounting method comes with unique advantages with a different effect on HOA finances.
- Accrual basis accounting, also known as the accrual method of accounting, is the more complex method used by HOAs.
- Simply put, accrual accounting remains the best HOA accounting method because it paints a more accurate picture of your association’s finances.
- In some states, it is a legal requirement for HOAs to maintain and submit regular financial statements.
- The finance department’s main goal is to maintain an accurate, consistent record of the association’s financial transactions.
- As Colorado’s leading community management company, our team is well-versed in all aspects of HOA accounting.
Key Features of an Effective HOA Accounting System
HOAs should carefully transfer financial records and ensure that board members are trained on the new system. HOAs have unique financial needs, including managing homeowner dues, tracking reserve funds, and maintaining compliance with regulations. Specialized software is designed to handle these requirements efficiently. Many HOAs use separate tools for accounting and general management, but this can lead to inefficiencies.
With the right HOA software, you can integrate your existing accounting needs with a robust solution that makes collecting, managing, and reporting on your finances a breeze. With automated reporting and real-time data tracking, board members can provide homeowners with detailed financial insights, improving trust and accountability. All expenses of the association are reported when paid, not when incurred. The Accounts Payable account does not exist on the Balance Sheet in Cash Basis.