HOA Accounting Standards the Board Must Set Up

However it is not designed for HOA or Condos and does not offer online functionality for owners to make payments or see community documents. The Modified Accrual Basis method poses comparable issues when it comes to the accuracy of the HOA’s economic future because the combined process involves using cash. With exactness being one of the prominent goals do you record income tax expenses in journal entries when it comes to association accounting, the Modified method remains unreliable. As a board member, you carry the duty of planning the financial course of the organization. In any form of accounting, there is a skill in balancing the budget and ensuring the operating and reserve funds are managed appropriately to keep everyone’s investment protected.

• For cash transactions, this includes the date, payee, amount, and description.
• Making it too complicated alienates people and hinders community relations.
• Even though it’s a tad bit confusing at the beginning, it’s the only method in conformity with GAAP and is considered the most reliable when it comes to reporting.
• The frequency of preparation of HOA financial statements may vary depending on state laws, community bylaws, and the size of the association.
• They are the entity that makes sure the whole neighborhood is well maintained and safe.

The first method of accounting is the Cash Basis, which records income and expenses only when actual cash is tendered. Homeowners associations (HOA) have many responsibilities when it comes to protecting the assets of the community. Using the best accounting method for HOAs comes along with that engagement.

Tools and Solutions for HOA Board Members

For example, when assessments are due, the Balance Sheet shall reflect Assessments Receivable under assets even if residents have yet to pay. You can book them as soon as they are incurred instead of waiting until they are paid. On the other hand, liabilities are where you record amounts you owe (i.e. accounts payable).

The Income Statement compares actual expenses and revenues reported for the period with estimated expenses and revenues reflected in the budget. For starters, if there is consistent record keeping, association directors can look back on previous financial years to identify patterns that could affect the current budget and adjust accordingly. If detailed records are not kept, it can be near-impossible to keep track of delinquent dues or know how much money is available to budget for community maintenance and new projects. The most common mistake that people make when preparing HOA financial statements is not adding enough detail. Add every detail, no matter how small, so you have a more thorough insight and better decision-making. If you are having trouble preparing community financial statements, the professionals at CSM are standing by to answer all your questions.

HOA Law on Financial Statements

It also gives community members peace of mind when there is accurate and efficient management of finances. In some states, it is a legal requirement for HOAs to maintain and submit regular financial statements. It is a good idea to keep detailed records anyways as they will be extremely beneficial for all other aspects of homeowner’s association management. When a homeowner declares bankruptcy, the first thing your HOA board should do is check with your attorney or management company. Keep in mind that there are certain bankruptcy laws that protect bankrupt homeowners.

Putting your homeowners’ association’s financial data in the cloud through your HOA accounting software should be safe, provided that you have chosen a professional, reputable provider. If your chosen accounting software provider has security systems in place – such as OKTA – this may make them a safe candidate. Meanwhile, an unsecured provider runs the risk of being fraudulent, and we would recommend avoiding such companies.

The Benefits of Outsourcing HOA Accounting

An audit requires more work from the CPA to analyze the HOA’s financial situation. The CPA must verify that all the information in the HOA’s reports is correct. This includes calling debtors to see how much people owe to the association. The CPA will also call creditors to confirm how much the association owes. There are numerous benefits to investing in a homeowners’ association management system. Some of the main benefits that you may enjoy when you invest in these expert solutions could include the following points.

• From here, you can determine whether the association has the funds to pay for these expenses.
• The FreshBooks Cloud Accounting app is here to make your life easier.
• The first report shows you a detailed list of owners who are in debt to the HOA, while the second report gives you a list of owners who have paid their assessments ahead of time.
• This will be important during tax season since that’s how the state will decide how much the HOA owes.

Accounts Payable – The accounts payable report lists all unpaid invoices as of the end of the accounting period. Revenues of the association are reported when earned, not when received. At the same time, an asset titled “Assessments Receivable” is reported on the Balance Sheet. As payments are received, they increase the association’s Cash balance while either reducing Assessments Receivable or increasing Prepaid Assessments. Larger communities will benefit from getting both a financial audit and a review. A CPA will do a routine checkup and make sure all records are accurate.

Choose the accounting method that works best for your association

An audit identifies any inaccuracies in your records in an effort to remedy them. 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. And, although state laws and your governing documents might offer you some protection, court rulings may still find you personally liable for poor HOA accounting and financial management.