HOA Accounting 101: Best Practices for Financial Success

Hire a company such as CSM to provide financial management assistance. It also gives community members peace of mind when there is accurate and efficient management of finances. Whether an HOA is made up of ten units or ten thousand units, it could be beneficial to hire a management company to ensure that everything is being run as efficiently and effectively as possible. When looking into property management companies, it is important to look for a company with a strong financial background.

It’s also important to have a realistic budget to avoid making decisions based on the income that may not be collected. With the modified accrual basis method, the amounts for Prepaid Assessments HOA Accounting and Assessments Receivable will be the same as the amounts on the Balance Sheet, just as with the accrual basis method. If unpaid invoices appear under Accounts Payable, the amounts will differ from those recorded on the Balance Sheet. This is because the recording of expenses follows the cash basis and not the accrual basis. Using the modified accrual basis method, the association reports revenues when it earns them, just as with the accrual basis.

Better Budgeting and Forecasting

It’s necessary to pay attention to the HOA financial statements which you’ll get from the homeowners association management company. 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.

Discover Why Community’s Have HOA Audits and the Services Available

Then look at the Check Register to see how many checks were issued during the month. Many California HOAs use the modified accrual basis as it offers some benefits of the accrual method with advantages of the cash method. The accrual basis method offers this advantage without compromising as long as the books remain open for two weeks after the end of the accounting period to record expenses in the correct period. HOA accounting refers to the financial management practices used by Homeowners’ Associations to track income, expenses, and reserve funds. HOAs typically collect dues from residents, which fund community services, maintenance, and reserve accounts for long-term projects.

HOA Accounts Payable

As the insurance gets used, the balance of the asset will decrease until there’s nothing left. If your homeowners association gets a year-long policy for $1,200, you will add that amount to January’s balance sheet as the policy value. Every month, you will tag $100 of that amount as an expense and the value will go down by $100. 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.

Ways to Maintain Your HOA’s Financial Stability

When you signed up to volunteer on your HOA board, you might not have realized you would become a part-time accountant. However, managing your association’s finances doesn’t have to be difficult. The right tools automate transactions, increase transparency, and make it easier to run reports, file taxes, and meet legal obligations. If you’re using QuickBooks or spreadsheets to manage your HOA’s finances, it’s time to move to HOA-specific accounting software. Software designed for HOA needs helps you manage budgeting, tax time, end-of-year close, and reporting obligations effectively.

Workers had already excavated more than 100,000 cubic meters of dioxin-contaminated soil and threated 13 hectares, by the time of the funding cut, details of which were reported by ProPublica on Monday. Ground was to be broken next month on the construction of a system to treat the most severely contaminated soil. When handling record requests that might contain sensitive information, develop consistent redaction procedures that protect privacy while maintaining transparency about association operations.

• The accrual basis method offers this advantage without compromising as long as the books remain open for two weeks after the end of the accounting period to record expenses in the correct period.
• There is also a multitude of services available from CSM to help homeowner’s associations organize and prepare their own financial statements.
• The cash account is simply debited when the cash is received (for example from member dues), and it is credited when cash is reduced (for example when paying expenses).
• By investing in the right tools, your HOA can eliminate manual errors, enhance financial transparency, and focus on what truly matters—building a strong and well-managed community.
• Therefore, your financial statements can be presented on the Accrual Basis without compromise.

Hiring Condo & HOA self-management support services will reduce the time required to be a Board member. Moving from manual invoice management to an online software will help with transparency, risk management and error reduction. Understand their situation and never reveal the status of their financial health to other homeowners in the community. It’s also not recommended to restrict their access to amenities or shut off their utilities during a trying period in their life.

Residents need to understand you want to hear what they say, but not everything they ask for will be feasible. This term means that you act in a way that benefits someone else financially. As an HOA volunteer, your fiduciary duty is to the association and the residents. You can’t act in your own self-interest and can be prosecuted if you make financially unsound or personally biased decisions. 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.

• For more information on how ACCU, Inc. can assist your HOA with accounting and consulting services, please reach out on our website.
• However, this digital transformation brings its own set of challenges and requirements.
• Again, this is due to the nature of the method wherein you only report income once you receive cash.
• While maintaining records is crucial, having a systematic approach to document destruction is equally important.
• An HOA audit is basically a review of your previous year’s financials.
• However, you must note that it doesn’t conform with the Generally Accepted Accounting Principles, also known as GAAP.

Modified

• However, if you need full verification and compliance checks, an audit is the best choice.
• HOAs collect fees from homeowners to cover maintenance, utilities, and community projects.
• For instance, if an HOA member pays their dues in January but the payment isn’t received until March, the income would be recorded in March when it is received.
• Unlike the Cash Basis and the Accrual Basis, the Modified Accrual Basis differs in timing when it comes to reporting its revenues and expenses.
• Next, the timing for notification depends on your current management agreement – has it expired, is it ending at the end of the month?

Luckily, HOAs use different accounting methods to ensure fees are paid correctly and on time. The three most common HOA accounting methods most organizations use are cash basis accounting, accrual basis accounting, and hybrid methods. Cash basis accounting, or cash flow accounting, is the simplest of the HOA’s accounting methods. In this system, income and expenses are only accounted for when they’re paid or received in cash.

Pro Forma Budget

Payments made online and mailed checks sent to a lockbox go directly into the community’s bank account, avoiding hold-ups and misplaced checks. We have compiled a series of videos and webinars as well as other resources (articles, sample letters, etc.) to help your HOA or Condo community through this difficult time. The Income Statement is meant to inform the Board how the association is doing compared to its budget. It shows the current period actual expense, budgeted expense and any variance between the two. If you’re on the hunt for an HOA management company, our online directory lists the best ones by location.