What is HOA Balance Sheet And How To Read Them?Heywood Community Management

There are also a multitude of services available from CSM to help homeowner’s associations get organized and prepare their own financial statements. At the end of each fiscal year, your HOA will be furnished with a few financial documents from your association’s accountant—foremost among them being the HOA balance sheet. A balance sheet is an invaluable snapshot of the association’s basic financial health. With that said, new board members—especially those with no prior accounting experience—do not always know how to ready or interpret a balance sheet.

What If a Homeowner Goes Bankrupt?

A good way to keep track of your income and expenses over the course of a 12-month period is to create an HOA accounting spreadsheet. You should also make sure that checks made out hoa accounting to your HOA go directly into the proper bank account. It’s also a good idea to assign someone, usually the HOA manager, to review all invoices, deposits, and bank statements.

The Importance Of An Updated And Accurate HOA Balance Sheet

Your general ledger is where you record all of your accounting transactions following the date of occurrence and a numerical order you set known as the HOA chart of accounts. The Accounts Payable (A/P) Report reflects accounts for vendors or suppliers that the Association owes money, but hasn’t paid yet (a form of debt). Thus, the A/P is a form of credit that suppliers and vendors offer to the Association by allowing them to pay for a product or service after it has already been received.

How to Better Understand Your Community’s Balance Sheet

The categories and format of the Balance Sheet are based on what are called Generally Accepted Accounting Principles (GAAP). These principles are the rules established so that every business prepares their financial statements the same way. By law, the Reserve Fund must have a separate bank account, but in other cases you can have different HOA accounting funds for all the money that are in one bank account. Last but not least, using accounting software such as QuickBooks simplifies bookkeeping and increases transparency. You can easily track your expenditure and generate financial reports in a minute. HOA accounting software reduces the risk of mistakes and inconsistencies that come with using spreadsheets.

How does an association audit work?

• Some community associations even opt to put their financial information on their website to allow homeowners to view it at any time.
• One of the most popular tools for creating an HOA balance sheet is Microsoft Excel.
• This means the board either did not practice smart spending or failed to prepare an accurate projected budget.
• HOA software automatically pulls its numbers from financial records to generate reports, thus, minimizing human errors.
• Some states may also have their own rules about how and when balance sheets must be distributed.
• It involves examining and reviewing the financial statements and discussing internal controls with the management company.
• The frequency of preparation may vary depending on state laws, community bylaws, and the size of the association.

This balance should be maintained to ensure the HOA’s financial health. Creating an accurate and up-to-date balance sheet is the best way to ensure this balance. In addition, liabilities also have current and non-current categories. These include rental fees, utilities, wages, prepaid assessments, interest, accounts payable, and temporary loans. Meanwhile, non-current liabilities are long-term payments that will become due after one year.

A common mistake is omitting or recording transactions incorrectly. Unlike the previous two reports, this one focuses on both the positive and negative bank balances of your HOA or Condo Association. On first glance, the main columns to pay attention to are the ones which show if the actual expenses for each maintenance category are similar to the budgeted amount. If not, you can then either adjust the budget going forward or see about limiting your spending on certain services. One of the most popular tools for creating an HOA balance sheet is Microsoft Excel.

• The Association’s General Ledger contains a record of the transactions (checks written, receipts from customers, etc.) that involve its checking account.
• This is because larger profits allow HOAs to budget for more things.
• 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.
• Think of financial statements as the financial “diary” of your HOA.

These can include everything from vendor bills to maintenance fees. The HOA balance sheet compares your association’s assets against your liabilities and owner’s equity. It gives you a complete look at your HOA’s net worth, including how much money you have in your bank account. 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.

Reserve Fund Balances

Simply put, a balance sheet should reflect positive equity and should balance. If an association has more in savings, cash, and funds to collect than it has to pay, it has a positive equity. If the community owes more money that it has and is able to collect, it has negative equity. Furthermore, the board should avoid dipping into reserve funds unless absolutely necessary.

• For instance, in California, Civil Code Section 5305 requires that a copy of the financial statement review be distributed to members within 120 days following the end of the fiscal year.
• Yes, balance sheets should be audited annually to ensure accuracy and compliance with any relevant laws or regulations.
• It might seem like a small error, but it can throw your whole accounting setup into chaos.
• Some associations will keep a few important expenses on an accrual basis (if they would otherwise skew the financial reporting), and the rest of the expenses on a cash basis.
• This could also come in the form of an aging report, which shows how long each account has remained unpaid.
• The process is complicated because some items appear in the company’s Cash account in one month, but appear on the bank statement in a different month.

Current Capital Reserve Plan