Many board members misunderstand their role when it comes to homeowners association accounting. This becomes a big problem when a financial issue you must handle arises. It’s important to become well-versed in all accounting aspects to better perform your duties in an HOA. HOA accounting can be very confusing — enough to make you use the wrong accounts when recording revenue and expenses.

Understanding Your Basic Record-Keeping Obligations

• Yet, it also remains integral to the smooth operations of any community.
• Click here to find out how reporting delinquent HOA and Condo owners to a credit agency works.
• Finally, the Modified Accrual Basis of Accounting follows the Accrual Basis for reporting revenue and the Cash Basis for reporting expenses.
• We’ll even take care of those uncomfortable past-due and non-payment notices.
• This way, they can prepare the association for maintenance, repairs, homeowner bankruptcy, and even financial dishonesty.
• As treasurer, you can expect to not only keep the bookkeeping accurate and analyze financial records, but also have knowledge of your state’s laws surrounding HOA finances.

The comparative income and expense report, for instance, shows a variance of actual costs vs budgeted costs and is great for spotting expense irregularities. This 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. It takes into account outstanding checks as well as deposits of cash that have not been processed by the bank. As a board member you have a fiduciary responsibility to exercise due care and diligence when overseeing the community and its funds.

HOA Accounting: What You Need to Know

• By overcoming the top 5 issues that self-managed communities encounter you can have a great experience that meets or exceeds that of communities that pay for full management at a fraction of the cost.
• Homeowners associations rely on dues and assessments to maintain common areas, fund reserves, and cover operational expenses.
• This will not just enable them to take their accounting method and financial practices to a new level, it will ensure they can go longer without performing another upgrade.

Also known as the Modified Cash Basis, the Modified Accrual Basis of accounting combines the Cash Basis with the Accrual Basis methods. The Modified Accrual Basis method is unique because revenues are recorded as soon as they are earned, but expenses are only recorded when payment has been made. In this case, accounts like assessments receivable and prepaid assessments will appear on the balance sheet, but liability accounts such as accounts payable will not appear. Like the Cash Basis, this method can only be used for interim or unofficial reporting. HOA accounting is an important aspect of running a homeowners association, but it can be a tedious task.

Logins, Payments, and Security: All You Need to Know About Your HOA App Portal

However, these charges must be demonstrably linked to the specific request – they can’t be used as a revenue source or deterrent to record access. Many associations find success with a clear fee schedule that’s communicated to members in advance and applied consistently across all requests. Software makes this entire process remarkably easier, and gives the association more transparency and insight into accounting activity. If the board is still using petty cash, consider switching to a credit card with a low credit limit. Larger communities will benefit from getting both a financial audit and a review.

• 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).
• The right HOA accounting software can help with the steep learning curve of managing your HOA’s finances.
• If you ever decide to outsource the service, don’t hesitate to give us a call.
• In most states, you can choose between cash, accrual, and modified accrual accounting.
• Understanding the laws special to your state will save you a lot of time and trouble.

Ask for Feedback from Residents

After all, even experienced professionals aren’t invulnerable to committing mistakes. By familiarizing yourself with accounting, you can safeguard your association’s finances. Simply put, an HOA audit is a comprehensive analysis of your association’s accounting records, including your financial statements. It objectively evaluates your internal accounting processes as well as the overall health of your association.

We’ve been providing Colorado Homeowner’s Associations with accounting and administrative services for over 25 years. Our team of friendly, experienced accounting professionals are all HOA certified through the Community Association Managers International Certification Board (CAMICB). Homeowners HOA Accounting associations, while non-profit, are still recognized as corporations by the federal government.