Unfortunately, not everyone in an HOA community knows what the numbers mean in financial reports. But, once one knows about the basics, it is actually relatively easy to learn how to read HOA financial statements. Beyond all else, knowing how to read financial statements will help both boards and owners in preventing fraud. If only one person understands these reports, then it would be easy for that person to cook the books and steal money from the HOA.

Modular Software

While the modified accrual method is less complex than the accrual method, the main downside is it does not always accurately match all expenses and income in the fiscal month in question. Because expenses follow a cash basis, monthly reports may mislead hoa accounting associations. As an example, if the board approves a $50,000 roofing contract, it will not show up on monthly reports until the check is written. The board may think it has extra money because the $50,000 is an obligation not yet on the books.

California Law Governing HOA Accounting

The frequency of preparing an HOA statement can be different with different HOAs and also by varying state laws. A good idea though is to prepare it on a monthly basis though, so it becomes a part of members’ monthly expense habits. Give homeowners 90 days or more to remedy the situation before involving collections. If they respond to notices with defiance or anger, they are not as likely to voluntarily pay. If they are not making any payments at all or have stopped responding, it may be time for collections.

HOA Accounting: How to Read Your Financials

The statement of income and expense contains the actual amount spent for the month, compared to the budgeted amount for that month. It also shows the difference between the budgeted amount and the actual amount spent. So, the HOA also reserves some rights in case they do not receive a timely fee from some members.

What is an HOA statement?

• Since the bookkeepers need to make more entries, the cost of maintaining the books increases.
• Accounting is the process of recording, summarizing, analyzing, and interpreting (money-related) activities to permit individuals and organizations to make informed judgments and decisions.
• Managing the finances of a community association is one of the most difficult, and most important, responsibilities of an HOA board of directors.
• Third-party fraud or forgery may also be covered if money was lost due to the actions of someone working outside the scope of association business.

Comprehensive accounting tools automatically reconcile accounts and create reports, and intuitive communication platforms facilitate more efficient and effective information sharing. If financial statements are incomplete or unclear, they can confuse association members and cause mistrust within the community and board members. Balance Sheet-The financial statement which shows the amount and nature of business assets, liabilities, and owner’s equity at a specific point in time. It is also known as a Statement of Financial Position or a Statement of Financial Condition. Understanding the HOA balance sheet is pivotal to managing a homeowners association.

Understanding HOA Accounting

• Abel Accountants can teach new board members the steps to reading HOA financial reports.
• This knowledge empowers homeowners to ask critical questions, address any concerns, and actively participate in the financial decision-making process to ensure the long-term stability and success of their HOA.
• The deliverables of an HOA statement are managed through a continuous effort to maintain the community and ensure its financial stability.
• The frequency of preparation of HOA financial statements may vary depending on state laws, community bylaws, and the size of the association.

The HOA statement usually includes details about the HOA account, such as the account number, the current balance, and any recent transactions. This information allows homeowners to have visibility into the financial https://www.bookstime.com/ status of the HOA and ensures transparency in the management of funds. Additionally, the accepted modes of payment are typically included, providing homeowners with options for making their payments.

Welcome To Community Financials

• Understanding members’ equity is essential as it provides insights into the association’s financial stability, impacting everything from property values to the HOA’s ability to meet future financial obligations.
• From this analysis, the board, working with a management company, can determine the budgetary dollar-amount required to be set aside each year.
• The Income Statement is a formal financial statement that summarizes the association’s operations (revenues and expenses) for a specific period of time usually a month or year.
• The HOA Cash Disbursements Ledger is a financial record that details all cash outflows or payments made by a homeowners association.

• Of course, the more frequently statements can be prepared, the more helpful they will be for the board of directors.
• These documents show the association’s financial standing, allowing board members to make well-informed decisions and keep the community running smoothly.
• When dealing with financial information, it is best to be open and honest in as much detail as is appropriate.
• HOA financial statements are vital tools that provide homeowners with valuable insights into the financial health and performance of their association.
• High delinquency rates can strain the association’s budget, affecting its ability to maintain and improve communal areas.