How to Read HOA Financial Statements

An HOA balance sheet reflects the day-to-day operations of the community. Board members must first understand balance sheets to understand the financial state of the association. If the HOA is overspending, balance sheets can help the board catch this problem hoa accounting early on. That’s one good reason why HOAs should prepare monthly balance sheets. Your total assets must equal your total liabilities plus equity — it’s in the formula. Check your general ledger, which is should contain all financial transactions.

• It allows your HOA to track all financial transactions without having to look back on all your receipts.
• After all, some communities need to earn extra money for the benefit of the community, too, like a Father’s Day buffet or Halloween costume party.
• How to Read the HOA Aged Owner Balance Report
  Based on the data you have set up to show when the report is run, there are many ways to interpret the information you get.
• It’s the only method that gives you an accurate picture of your finances.
• Your association is doing well and is bringing in more money than it owes.

Using the modified accrual basis method, the association reports revenues when it earns them, just as with the accrual basis. This means the association reports them as it pays for them, not when it incurs them. With the cash basis method, amounts for Accounts Payable, Assessments Receivable, and Prepaid Assessments don’t show up on the association’s Balance Sheet.

What Are The Standard Financial Statements For An HOA?

As an example, if the board approves a $50,000 roofing contract, it will not show up on monthly reports until the check is written. The board may think it has extra money because the $50,000 is an obligation not yet on the books. HOA accounting is an important aspect https://www.bookstime.com/online-bookkeeping of running a homeowners association, but it can be a tedious task. Board members have a responsibility to understand financial interim statements to guide the association’s financial course. This job can be complicated by inaccurate or incomplete financial reports.

The Balance Sheet will have an Accounts Payable liability section. As the HOA settles its balances, the association reduces its Accounts Payable and Cash balance. This is why it’s called a balance sheet – the report should be balanced if the money coming in and money going out was properly tracked.

- hoa financial report template

Below you will learn about some of the critical components of accounting for HOA associations. However, with so much to do and so little room for error, inexperienced boards may consider requesting help from a property manager, accountant or bookkeeper. Additionally, there is plenty of available software that can assist self-managed communities.

A balance sheet is a monthly snapshot of the cumulative financial standing of an association. This could lead to losing focus and moving even farther away from your goals than your HOA team was to begin with. In this article, we’re going to take a close look at the HOA balance sheet.

HOA Monthly Balance Sheet Template

You might end up overspending and making poor financial decisions as a result of inaccurate records. The balance sheet reflects the day-to day-operations of your community. Understanding it will help you assess what is working and what is not working. If you don’t like what you see, discuss the issue with your property manager and find out what expenses can be cut. Reduce what you are spending on vendors and supplies, or consider increasing assessments. In many cases, problems start when assessments are not being collected efficiently or quickly enough, so consider starting there.

Using the same example from above, the smaller HOA would have an equity ratio of 63% while the larger HOA’s ratio would be only 5%. When listed as a ratio, it becomes quite clear which HOA is more financially sound despite having the same total equity. Your association is doing well and is bringing in more money than it owes. If equity is negative, it means that you should quickly reevaluate your finances.