Most banks will provide an additional original bank statement to the association’s treasurer. A fiscal year is the period used for calculating annual (yearly) financial statements. 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. Balance Sheet-The financial statement which shows the amount and nature of business assets, liabilities, and owner’s equity at a specific point in time. It is also known as a Statement of Financial Position or a Statement of Financial Condition. While most associations will have both a reserve and an operating fund, many associations may have other funds.
Sign up for Boardline Academy to learn more about managing HOA finances in your community. Standard costing is essentially used to control costs in assisting community managers. No matter how great your memory is, remembering all your debts is a nearly impossible task. Homeowners associations work with all kinds of vendors and service companies.
Total Liabilities and Equity: $______
First, if reserve money is not in a separate account, the IRS can look at it as taxable income to the HOA. Second, it’s absolutely essential to keep track of what comes in and goes out of the HOA. And, should the HOA be audited, the treasurer will have to account for every dollar the HOA has earned and spent. How to Read the HOA Balance Sheet Financial Statement
The Balance Sheet shows the current state of your HOA/Condo Association’s bank accounts. This information is important for making sure there is enough money put aside for taking care of bills and other HOA expenses. This could lead to losing focus and moving even farther away from your goals than your HOA team was to begin with.
This is the opposite of cash HOA accounting, which recognizes transactions only when there is an exchange of cash. Accounting is the process of recording, summarizing, analyzing, and interpreting (money-related) activities to permit individuals and organizations to make informed hoa accounting judgments and decisions. This article is designed to assist Community Association Managers, Boards of Directors, and homeowners in reading and understanding the financial records of the Association. An HOA balance sheet reflects the day-to-day operations of the community.
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Equity is essentially the residual interest in the assets after all of the liabilities have been deducted. In other words, it is the value left after subtracting all of the liabilities from the assets.
- While lower HOA fees may seem more attractive for an HOA, they’ll unlikely be able to compensate for a reserve fund appropriately and could be an indication of a flawed HOA management strategy.
- Investigate if and what expenses are greater than the income and then determine the necessary action that is best for the HOA.
- Remember; dealing with a bankruptcy is a very delicate process, and one that should not be taken lightly.
- HOA balance sheets, whether prepared monthly, quarterly, or annually, are a good representation of the daily operation of your community association.
- A reserve study can predict the funds that will be needed on hand to address the maintenance issues or repairs that are identified.
- When money is owed by the HOA, expenses are only recorded when the money is actually paid, like the cash accounting method.
- Board members often lack the expertise to prepare financial documents themselves.
Meanwhile, the long-term liabilities are obligations that can be settled even after a year. Understand their situation and never reveal the status of their financial health to other homeowners in the community. It’s also not recommended to restrict their access to amenities or shut off their utilities during a trying period in their life.
HOA Reserve Funds and State Regulations
Just as with financial statements, the more frequent you create balance sheets, the more insight they can provide into the financial workings of a community association. While it is perfectly acceptable to release financial and balance sheets annually, it is better to release them monthly or quarterly. Some communities may operate with reserve funds and/or active investments, but all financial reports should be reviewed on a quarterly basis by paying special attention to details. An HOA board may also request to review interim reports to determine the proper allocation of funds and financial balance. An HOA board should not be spending any more than it’s receiving in income. In the case of liabilities being greater than the assets, the business must consider increasing dues or determining a special assessment so it doesn’t deplete all the reserves.
Check your balance sheet to get a feel for the financial strength of your community association. Ethics and compassion should guide your judgment, particularly when it comes to homeowners and the honest maintenance of financial records. In the end, you want to make your community a beautiful and financially sound place to live for all residents. As you may well know, being a member of the Board of Directors for your homeowners association means having an immense financial obligation to your community. Your job will become convoluted by illegible or inaccurate financial reports and records, which—if you are not prepared—can be overwhelming. There are two different types of equity and it’s necessary to understand what type you’re dealing with in regards to HOA funds.
Additionally, HOAs can create committees to oversee certain tasks, such as approving architecture plans, communicating with residents, enforcing covenants, maintaining common areas or managing finances. For example, an HOA can take action if a homeowner doesn’t complete necessary repairs or plays loud music late at night. Board members or the management agency can also mediate disputes between neighbors and determine who is responsible for repairs or improvements when issues occur on boundary lines. Upscale HOAs might also provide amenities like equestrian facilities, ponds and golf course access.
- For example, a bank service charge might be deducted on the bank statement on August 31, but the company will not learn of the amount until the company receives the bank statement in early September.
- After all, your board has a duty to protect your HOA finances and assets.
- For one thing, bad HOA bookkeeping can cause a major financial fiasco within the association.
- The results of this study should provide an estimate of any necessary future maintenance or repairs.
- Utilizing a template can streamline the process of creating or updating an HOA balance sheet, making it easier for board members and financial managers alike.
- Additionally, there is plenty of available software that can assist self-managed communities.
- While we can all appreciate that board members are volunteers, they must take a serious approach to finances.
These items would include things like the courtyard, swimming pool, community center, elevators, and roofs. The results of this study should provide an estimate of any necessary future maintenance or repairs. You don’t need a fancy report but you should have something that shows how much money you have set aside and the anticipated cost for replacements and larger capital projects. This report is far superior than looking at a capital/ reserve bank account which can be deceiving. You may think you have a lot of money saved but if you had a big roofing or paving project it could be wiped out with no funds for other projects.
Modified Accrual Basis
Before moving into a new community overseen by an HOA, you’ll want to determine their financial health. And if you’re already living within an HOA community, you should be familiar with the last time a capital reserve study was conducted. A reserve study is used to verify the strength of all common areas that fall under the responsibility of the HOA.
Not only will this look bad to the homeowners, but this can lead to homeowners taking legal action. Insufficient funds is another possible consequence of poor homeowners association accounting. When you fail to budget your expenses properly, the HOA might run out of money. This will inevitably force your board to either take out a loan or charge special assessments to homeowners. And, if you have any experience with HOAs at all, you’d know that homeowners hate having to pay special assessments on top of their monthly dues.