The Complete Guide to HOA Financial Statements
The Bank Reconciliation report is used to “prove” that the cash assets shown on the association’s books and balance sheet agree with what the bank statement shows. The reconciliation takes into account outstanding checks that have not been processed by the bank as well as deposits of cash that have not been processed by the bank. There should not be any difference it should be $0 but if there is a difference it is a flag for you to look into something further.
- For example, under California law, the Association’s Reserve Account must be a separate fund from the operating account.
- You may receive many monthly reports from your Management Company, but let’s review the top five most important, what they mean and potential watch outs.
- Transparent financial processes help to promote teamwork and positive community relations between homeowners and association board members.
- Sometimes the bank decreases the company’s bank account without informing the company of the amount.
- Your options may to be to either borrow monies from reserves, cut expenses in other areas or assess your homeowners to make up the difference.
- 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.
Where Should the HOA Financial Statements Go?
- If you only need help with accounting, though, it might be better to seek help from an accounting firm, CPA, or a financial management company.
- The D/E ratio indicates the proportion between debt and equity, reflecting how much of the association’s operations it finances with debt versus its own resources.
- This will inevitably force your board to either take out a loan or charge special assessments to homeowners.
- For an HOA financial statement to be effective, it needs to be prepared so that anyone can understand the content.
Evaluate net cash used in investing activities to understand investments in community infrastructure. Inspect the net cash from financing activities for insights into the HOA’s debt management and equity changes. The specific format and content of an HOA financial statement may vary based on the association’s size, legal requirements, and accounting standards. So, let’s drill down on what the HOA financial statements are, what each specific document within them means, and what insight they give title and escrow professionals. The YTD net income figure on the income statement needs to agree with the net income figure on the balance sheet. Given that funds are essentially having more than one general ledger, the accounts can be designated by the special use of account numbers, each set of numbers representing a specific fund.
HOA Balance Sheets
It also is your roadmap to maintain or improve your Balance Sheet (the financial health of the association). Once the budget is in place, you can track how you are doing each month and year-to-date. When reading an income statement, look for inflated expenses to spot fraudulent activities. Check and understand the HOA’s sources hoa accounting of revenue, such as dues, special assessments, and capital contribution fees. Compare these figures with the expenses to avoid losses and ensure your HOA is fiscally sound. An income statement, also known as a profit-loss statement, outlines the revenues and expenses of the association over a given financial period.
Add and Deduct from the Right Accounts
If you have an HOA management company, they may offer audits as part of their HOA accounting services. Lastly, the cash disbursements ledger lists down all of the checks your association has written and issued for the period specified. Otherwise known as a check register, this report consists of information such as the check’s recipient, the check date, and a description of the expense.
This information is important to keep in mind when planning your next year’s budget and can help pinpoint discrepancies before they become an issue that is more difficult to fix. Continuous learning https://www.bookstime.com/ and understanding will enable you to effectively navigate your HOA’s finances, leading to a stronger, healthier community. So, keep studying, ask questions, and strive for a financially fit HOA.
Need Further Help Reading HOA Financial Statements?
Most organizations use balance sheets to track their expenditure and make informed decisions. Understanding financial information can be overwhelming when you are not used to it. To feel more comfortable, HOA board members need to learn how to interpret their community’s financial records.
- It also is your roadmap to maintain or improve your Balance Sheet (the financial health of the association).
- No matter what decision is made regarding frequency, it must be maintained.
- Insufficient funds is another possible consequence of poor homeowners association accounting.
- Owner’s equity (or net worth or capital) is increased by money or property contributed and any profits earned, and decreased by owner withdrawals and losses.
- While a large number of associations use the calendar year (January-December) as their fiscal year, a business can elect to use any other twelve-month period such as June-May as their fiscal year.
- It also means that the statements have been professionally checked and relieves some of that stress from the board members as well.
