Reading Your HOA Balance Sheet HOA Board Member Guidance

Within the community, the cash flow statement is a gauge of the association’s ability to fulfill upcoming obligations, like the salary of employees. The cash flow recorded should be the same as the increase or decrease of cash transactions in the Income Statement for accurate reporting. Although you can rely on manual accounting processes, the advent of management software has made it infinitely more efficient and convenient to stay on top of your HOA’s finances. Here are just some of the ways HOA software can help with balance sheet preparation. One of the best homeowners association accounting rules to adopt is to exercise internal controls. That means not letting a single person have control over every financial department.

Some have their own laws that dictate what homeowners associations can and can’t use. For instance, even though there are three accounting methods, California law directs that HOAs should use the Accrual Basis when preparing their pro forma operating budget. Simply put, an HOA audit is a comprehensive analysis of your association’s accounting records, including your financial statements.

Hoa Financial Statement Template

It will provide a general snapshot of how well your association is doing financially at a certain point in time, whether it be at the end of every month, quarter, or year. As such, you must include it in every official financial statement. Like all HOA financial statements, this one must be prepared accurately. This financial statement shows profitability, and any inaccuracy can result in unnecessary costs and wrong inventory projections. After all, some communities need to earn extra money for the benefit of the community, too, like a Father’s Day buffet or Halloween costume party. The Balance Sheet is a financial statement that shows the financial situation of the association, basically showing its net worth.

In this case, hiring a certified public accountant (CPA) is preferable to ensure the HOA balance sheet is accurate. The report generally lists all of the vendors owed, payment terms, and how much is due. https://www.bookstime.com/articles/bookkeeping-seattle Invoices that are not yet due, or work that a vendor hasn’t completed, should be included here. The accounts payable list allows the board to anticipate how much money will be paid out in the future.

Liabilities

A general ledger is a list of the association’s financial transactions. If you use Excel, or accounting software, you may also be able to organize this report by income/expense categories, or other variables. Having an up-to-date general ledger is helpful because it allows anyone with permission to see detailed information about specific transactions. But, as an HOA board member, you should do your part to at least understand the basics of accounting and financial management. After all, even experienced professionals aren’t invulnerable to committing mistakes.

• This type of accounting is usually considered superior because it offers the most complete overview of the HOA’s financial status compared to the modified accrual or cash methods.
• In terms of revenues, the association records them when it earns them, not when it receives them.
• An HOA balance sheet lists items like insurance payments, HOA fees, prepaid expenses, petty cash, bills, compounded interest, and any equity in the HOA’s reserve accounts.
• While they do not have to be produced every month, it’s a good idea to have a monthly balance sheet prepared.
• Overall, though, HOA software can prepare more accurate balance sheets.

When your HOA has positive equity, it means your association is in good financial condition and has enough money to cover its debts. On the other hand, negative equity signals that hoa accounting your association isn’t doing so well. It means more money is going out of the association than coming in. Still, it’s important to be considerate of the bankrupt homeowner.