A comprehensive audit involves the checking of records to ensure they comply with basic accounting principles. Also known as a Check Register, a Cash Disbursements Ledger is vital to any homeowners association accounting rules. To put it plainly, this ledger shows the board members an official list of money flowing out of the association. They go on the accounts payable sheet, which is updated along with the cash balance when the service bill is paid. With cash basis accounting you keep an accurate record of the cash balances in your accounts at any given time.
Whether that means raising the budget for lawn care, increasing assessments, or looking for a cheaper vendor is entirely up to you. An accounting standard is a set of procedures, policies, and principles specifying how accounting transactions must be recorded and reported. In the United States, the most commonly used set of accounting standards is the Generally Accepted Accounting Principles (GAAP). If you’re setting hoa accounting best practices up or revising your HOA accounting, reach out to Homey Bookkeeping. We’ll help you assess the needs of your community and design an accounting method that works for you and your HOA.
Reporting requirements
To know how often to audit your HOA, you must first look at the laws in your state. Most states require associations to conduct an audit or review at least once a year. Some HOA governing documents say the same, while others only require it once every few years. This report also compares your actual expenses with your budgeted expenses. 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.
Use the information below in tandem with advice from legal professionals to keep your processes on the straight and narrow. Typically set during the annual budgeting process, these fees are allocated between operating expenses and the association’s reserve funds. The funds cover everyday maintenance as well as future projects and improvements, ensuring the community stays well-maintained and prepared for any upcoming needs.
Services
It’s also not recommended to restrict their access to amenities or shut off their utilities during a trying period in their life. 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.
Reserve Fund Contributions
Whether the associations you manage are big or small, smart bookkeeping undoubtedly plays a key role in the health of these communities. The HOA accounting best practices you follow can have an impact far beyond just sticking to a budget. In fact, in a recent survey detailing the challenges that community managers are facing in 2024, respondents said that rising maintenance costs were a major pain point. Without proper accounting measures, those costs could send even the most well-meaning associations into the red. HOA accounting can be very confusing — enough to make you use the wrong accounts when recording revenue and expenses.
#5: Keep Communication with Boards Clear and Consistent
Homeowners associations with high cash flows should get an annual audit by either a staff member of the homeowners association’s management company or a CPA. If you opt to hire a CPA, they will provide you with one of three reports. The association will decide which report they want before the CPA starts work. Maintaining accurate and up-to-date financial records is crucial for effective HOA accounting.
- You don’t need a credit card, and it comes loaded with sample data so you jump in and take it for a test drive risk free.
- Every day, association funds should be directly deposited into the homeowners association’s bank account and the receivable department should record the deposits.
- Don’t use “Events Income” one year and then “Income from Events” two years later.
- This report has a receivable counterpart, usually known as the account delinquency report, which shows all of the money owed to the association.
- Reserve studies involve conducting an inspection of the property and, based on those results, prioritizing the capital projects that need to be completed in the near future.
This includes the same services as a compilation and also has the CPA take an analytical look at the association’s financial records. This is a limited assurance report that guarantees there won’t be any material modification needed. Most importantly, having detailed financial statements readily available to all HOA members can promote transparency between the board and the community. If the homeowners can see what their money is going towards, they will be more agreeable and open with the board of directors.
Essential Monthly HOA Financial Reports
If the homeowners association is self-managed, the treasurer will provide you with these reports. You’ll need to record the reports using financial software, such as QuickBooks. The balance sheet provides a snapshot of the HOA’s financial position at a specific point in time.
As an HOA Board Member, you must have a basic understanding of your association’s accounting and finances, but in-depth accountancy can be complex and overwhelming. Enlisting the help of professionals to streamline your processes and ensure best practices are followed is highly recommended. Seeking expert accounting input will enable you to spend more time engaging with the community that you represent.
Ideally, the person who writes the association’s checks should be different from the person handling receivables. It’s also wise to have someone review invoices, deposits, and bank statements on a regular basis. Some HOAs have a finance committee that is tasked with this responsibility. Since this is a volunteer position, those serving on the committee often do have a financial background. The committee may meet with the board on a quarterly basis to discuss anything of significance, as well as initiatives on how the association may reach long-term goals. Quarterly meetings help ensure that the finance committee, the board, and management are all on the same page.
An HOA may pay for six months or a full year to get the best monthly rate. Those expenses are recorded on the balance sheet for the month for which they apply. You are now aware that the service was received and it is reflected in your total operating expenses on your income statement.
- An accounting standard is a set of procedures, policies, and principles specifying how accounting transactions must be recorded and reported.
- It also gives community members peace of mind when there is accurate and efficient management of finances.
- And if you’re ready to try it yourself, get started with a free 14-day trial of Buildium.
- 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.
Keep in mind that you should never perform audits or reviews internally. You must always hire a third party, typically a Certified Public Accountant (CPA), so as to get an outsider’s perspective. Since collections are heavily regulated, familiarize yourself with the rules. It’s also a good idea to contract out to third-party services, such as an attorney, when things escalate beyond reminders and fees. Don’t forget to think about all the third-party services that help keep your association running.
The income statement, also known as the profit and loss statement, hoa financial statements, shows the revenues and expenses of the HOA over a specific period. It helps in determining whether the association is operating at a profit or loss. Though your HOA is not profit-driven, the association still handles revenue and incurs expenses like any other business organization. Your HOA board has a duty to manage the association’s finances correctly. In some cases, members of the community might take legal action against your board for mismanagement.
A compilation only involves the collation and surface-level checking of records. It also differs from a review, which is a slightly superior form of compilation. When the January service invoice is paid in February, the accrual is reversed in the records.
The association’s bylaws will likely state how often an audit needs to take place, but it’s considered best practice to conduct one annually. Typically, it occurs around the same time that association taxes are put in order. When a fine is issued, it’s typically added to the member’s regular statement, so they’ll pay it along with their usual dues. While fines aren’t a reliable income stream, they can provide a bit of extra revenue when rule violations occur. Typically, audits take place at least once a year, although each association’s governing documents may have different requirements.
An income statement is essential for budgeting and planning future expenditures. It includes revenues (such as homeowner dues and fees) and expenses (such as maintenance costs and management fees). The difference between total revenues and total expenses indicates the net income or loss for the period. Using the Cash Basis of Accounting, you record income and expenses when money changes hands.
