HOA Accounting: How to Read Your Financials

Similarly, for expenditures, the actual costs incurred in maintaining and managing the community are compared to the budget. The Comparative Income and Expense Report is crucial for evaluating the financial performance against budgeted expectations, highlighting areas of fiscal health or concern within the community. Analyze the statement to ensure that the HOA is financially sound and able to meet its obligations, which guarantees the well-being of the homeowners.

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From there, you can investigate further or ask your HOA management company what went wrong. Break down your expense accounts into more specific accounts such as “Legal Fees” and “Maintenance Supplies.” In doing so, you can more accurately track where your HOA’s money is going. A majority of experts and accountants agree hoa accounting that the Accrual Basis is the best accounting method to use. It’s the only method that gives you an accurate picture of your finances. Plus, it’s also the only method that conforms with the Generally Accepted Accounting Principles (GAAP). Make sure to use the tools available and ask for external help if needed.

Bank Reconciliation Report

This report details the amounts due, payee names, and due dates, providing a snapshot of the HOA’s short-term financial obligations. As a title professional, when reading the HOA Income Statement, focus on understanding the sources of income and the expenses incurred by the HOA. There should be a budget comparison report for every fund the association maintains. Balance sheets are easier to manage if the document sticks to using the same format and the same categories every time.

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Most of the time, HOA boards lack the qualifications or expertise to do this themselves and, thus, require the help of a Certified Public Accountant (CPA) or management company. Let us assume that a homeowners association is supposed to receive $2,000 a month in assessments. Let us also assume that it has vendors, all of which do work monthly and all of which get paid monthly. Let’s also assume that in one month 25% of the homeowners paid assessments late – they paid the next month, and that all of the vendors were paid monthly.

• Community Financials provides expert bookkeeping and financial reporting for HOAs, Condominiums, and POAs nationwide, ensuring fund security, transparency, and effective communication.
• That will show you what the HOA’s financial cushion is available to cover liabilities.
• The main goals of the HOA Aged Delinquency Financial Statement is to determine which homeowners owe money to the HOA or Condo Association, how much they owe and how overdue their payments are.
• In a balance sheet, you will usually see assets listed in order of liquidity.
• We have years of experience working with thousands of residents across the United States.
• You can easily track your expenditure and generate financial reports in a minute.

It is also typical for the Budget Comparison Report to list the actual income and expenses Year-To-Date, and in the next column budgeted income Year-To-Date. Similarly, it should provide the differences between the actual income and expenses for the Year-To-Date against the budgeted income and expenses Year-To-Date, both as a number and as a percent. Negative equity on an annual sheet does not only mean https://www.bookstime.com/ that an HOA has lost money over the year, but it also translates to flawed day-to-day operations which you must reconsider. The balance sheets of an HOA offer the quickest and easiest snapshot of your HOA finances. It lists down your organization’s assets and liabilities based on the HOA general ledger. Check your balance sheet to get a feel for the financial strength of your community association.

• During this process, though, you can commit mistakes and end up with an inaccurate report — and you already know how dangerous it can be to work under a financial misconception.
• The general idea is that economic events are recognized by matching revenues to expenses (the matching principle) at the time in which the transaction occurs rather than when payment is made (or received).
• Title professionals looking to gain insights from the Comparative Expense Report should start by comparing actual expenses against budgeted figures to identify variances.
• This report has a receivable counterpart, usually known as the account delinquency report, which shows all of the money owed to the association.

• The major sections of an income statement are the heading, the revenue section, the expense section, and the final calculation of a profit or loss.
• It serves as the foundation for all financial reporting and analysis, ensuring that every dollar spent or received is accounted for.
• Good or bad, board members need to know what the numbers say so they can make adjustments as needed.
• This could lead to the misconception that your association has more money or fewer debts than it actually has.
• After all, even experienced professionals aren’t invulnerable to committing mistakes.

What is an HOA balance sheet? How to understand it

HOA Financial Report #1 – Aged Delinquency Report