At the very least, homeowners should be able to review the association’s Balance Sheet and Income Statement, along with a statement of their account and the year’s budget. Though, you should remember that board members have a responsibility to keep homeowner information private. That means restricting access to more sensitive records such as delinquency reports and bank statements. Accrual Accounting for HOA communities is considered by most experts to be the best basis of accounting. This is because the Accrual method gives you a more accurate picture of your financial situation.
- While this data isn’t subject to member inspection rights, boards must still maintain accurate records to ensure compliance and handle updates appropriately.
- The good news is board members don’t have to try to figure things out on their own.
- Also, the cash accounting method only records expenses when you pay them, not when you incur them.
- To help you we’ve put together this list of collections best practices for condo communities & HOAs.
- Any accounting software for homeowners association should help with your annual budgeting and more.
Accrual Basis of Accounting
An audit identifies any inaccuracies in your records in an effort to remedy them. Financial oversight is one of the most important responsibilities of an HOA board. Proper budgeting, expense tracking, financial reporting, reserve fund management, audits, and assessment collection all play a role in maintaining a financially stable community. Financial oversight can be overwhelming for HOA board members, especially those without accounting experience.
Our HOA Communities
The other risk factor that good HOA accounting standards guard against is one no HOA board member likely wants to think about, but a very present threat all the same — intentional financial crime. A malicious person can take advantage of accounting systems that lack technology and best practices to remove funds and doctor records, potentially avoiding detection for a long time. Typically, an HOA must prepare and update financial statements every month, with the exception of the general ledger.
Budget vs. Actual
The question of vendor contracts often creates particular confusion for boards. While North Carolina law doesn’t explicitly require disclosure of these documents, many associations choose to make them available in the interest of transparency. However, boards should carefully consider how to balance member information rights with vendor privacy and competitive considerations. Rather than adopting a one-size-fits-all approach, consider developing a nuanced policy that protects both transparency and business relationships. By following best practices and working with financial experts like RISE, HOAs can ensure long-term financial health, homeowner trust, and a well-maintained community. HOAs must ensure that funds are spent responsibly and that every dollar is accounted for.
Payments Go Directly to The Bank
Cash accounting dictates that you should record all revenues and expenses as money moves. In this case, you would only record a revenue HOA Accounting or expense account when you have either received (revenue) or paid (expense) money for it. Because of the timing of the cash method, account titles such as “Assessments Receivable” or “Accounts Payable” do not appear on homeowners association financial statements such as the Balance Sheet. The modified basis (also referred to as modified accrual basis) is a combination of the cash and accrual basis of finance management.
- It is also not possible to compare the values of these transactions to the final balance sheet prepared at the end of the period in order to verify accuracy.
- This allows HOAs to track all financial obligations and revenues in the period they relate to, which is essential for long-term financial planning and budgeting.
- It produces the most comprehensive overview of your HOA’s financial status.
- A CPA will do a routine checkup and make sure all records are accurate.
- The board may choose to prepare Accounts Payable, Prepaid Assessments, and Assessments Receivable reports.
- In some cases, the organization managing accounting and budgeting for an HOA won’t be the board itself, but rather an accounting firm called in for financial assistance.
How do HOA boards find ideal accounting and community management software?
We’ll take care of your accounts payable processing, financial statements and even coordinate with your CPA. For General Ledger bookkeeping, you must record every transaction in numerical order — according to how you ranked them in your Chart of Accounts — and based on the date of occurrence. Every entry must consist of a debit and a credit account, with the total debit amount equaling the total credit amount. This is one of the most important homeowners association accounting rules. Your General Ledger consists of all the association’s financial transactions. It acts as the basis from which all other reports are created and verified.
Well, as you may have already discovered, there are many things that can go wrong – which makes for a logistical nightmare if not managed properly. Making things worse, the world is now in the second year of the Covid-19 pandemic, complicating HOA accounting and collections processes even further. As much as you’d want it to be smooth sailing from here, the truth is that HOA accounting is a subject that takes a lot of time and effort to master. “Right now it’s a museum of American war crimes, and the whole point of this is to show that we didn’t just walk away from what happened, we decided to do something about it,” he said. “You have to wonder if the people who made the decision to freeze these funds know anything about the tragic history of the U.S. and Vietnam … And they must not care about the many thousands of tons of severely contaminated soil that is exposing tens of thousands of people to a very serious health risk,” Rieser said.
The Best HOA Accounting Methods HOA Bookkeeping Tips
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. As a board member, you should know how to analyze financial reports to prepare the association for maintenance, repairs, and homeowner bankruptcy. Lay a good foundation for successful financial management by using the best HOA accounting method. It’s helpful to review the HOA financials from the previous year in order to prepare for the following year.