HOA accounting is perhaps one of the most demanding facets of managing a homeowners association. Yet, it also remains integral to the smooth operations of any community. Large associations with many accounts or complex budgets often choose to prepare statements every year. The most common mistake that people make when preparing HOA financial statements is not adding enough detail.
How Transactions are Recorded under the Accrual Basis
- If you have an HOA management company, they may offer audits as part of their HOA accounting services.
- Do you have a library of prior financial statements you can view online?
- Revenues of the HOA are reported when earned, not when received – the timing is the same as for the Accrual Basis.
- When handling record requests that might contain sensitive information, develop consistent redaction procedures that protect privacy while maintaining transparency about association operations.
- Community Financials offers our clients a simple and inexpensive way to avoid paying attorneys for delinquent fees and their costs which they may or may not recover for the association.
- Using the cash basis, the association reports revenues when it receives them, not when it earns them.
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. Well, as you may have already discovered, there are many things that can go wrong – which makes for a logistical nightmare if not managed properly.
White-Glove Services
The accounts payable report shows unpaid expenses and tells the homeowners association what expenditure obligations happened within the month. The account delinquency report shows the accounts receivable and a list of the members who are not current on their obligations, like late fees and legal fees. Using the Cash Basis of Accounting, you record income and expenses when money changes hands. That means you only report transactions when you pay for them or receive payment for them. Using this method, no such account titles like Assessments Receivable or Accounts Payable appear on your financial statements.
Compare Income and Expenses
- Association funds should be directly deposited into the association’s bank account on a daily basis, and recorded by the receivable department.
- When setting up your HOA accounting standards, you must first decide which accounting basis to use.
- The financial statements and all supporting documentation should be given to the association’s directors for their review on a monthly basis.
- Generally, out of the three methods of HOA accounting, the Accrual Basis method is the healthiest and superior accounting standard to use.
- It is a necessary step in accounting for HOA communities and provides you with insight on how to prepare for the following year.
Nothing beats the convenience and expertise you have access to when you trust your HOA’s or condo’s bookkeeping/accounting to Community Financials. While accrual accounting is the most common, it’s worth noting that some smaller HOAs might use cash basis accounting due to its simplicity. However, as associations grow and financial matters become more complex, a transition to accrual accounting often becomes necessary.
Demystifying HOA Accounting Services: What You Need to Know
When a homeowner declares bankruptcy, the first thing your HOA board should do is check with your attorney or management company. Keep in mind that there are certain bankruptcy laws that protect bankrupt homeowners. Therefore, you may not be able to push through with any HOA Accounting pending legal cases with the homeowner or collect past due balances.
- Liabilities refer to the amount of money that your homeowners association owes, like if you have an unpaid water bill or a loan for a project.
- The CPA will also inspect the homeowners association’s contract for mistakes.
- Click here to find out how reporting delinquent HOA and Condo owners to a credit agency works.
Online Payments
As payments are received, they increase the association’s Cash balance while either reducing Assessments Receivable or increasing Prepaid Assessments. HOAs should make association records available to all homeowners as stipulated in state laws and your governing documents. You will usually find the proper procedure on how to request copies of your HOA financial statements within your bylaws or CC&Rs. You can also generate more accurate financial statements when you use the Accrual method. Most importantly, having detailed financial statements readily available to all HOA members can promote transparency between the board and the community.
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. 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. A key part of financial transparency is access to banking information.
