Effective financial management is a cornerstone of a successful community association . Accurate accounting ensures transparency, builds trust among residents, and supports the long-term stability of the community. Let’s take a look at three key HOA accounting methods that can help streamline your financial operations. The accounts payable report lists all of the association’s unpaid bills and vendor payments due.
Managing the Homeowners Association’s Bank Account and Assets
- Because HOAs are non-profits and usually tax-exempt, you most likely won’t owe money.
- Other financial documents, such as P&L statements, the general ledger, and your balance sheet, provide insights into the HOA’s financial resources.
- If the homeowners association is self-managed, the treasurer will provide you with these reports.
- Ideally, the person who writes the association’s checks should be different from the person handling receivables.
- Moreover, they can apply some top accounting practices, which we will cover in this article.
- Enlisting the help of professionals to streamline your processes and ensure best practices are followed is highly recommended.
These organizations no longer have to purchase numerous systems from various software providers and force those tech tools to work together. When HOA boards have strong, technologically enabled HOA finance processes on their side, they don’t have to worry about building accounting know-how. Efficient HOA accounting practices designed around purpose-built technology are so helpful because they deliver an efficient approach to financial functions. Funds are accounted for in a centralized location, ensuring that employees can spend less time handling manual accounting functions. Once a month, you need to compare your forecasted or projected budget to what’s in your bank account.
Cash Basis Accounting
Finally, the Modified Accrual Basis of Accounting follows the Accrual Basis for reporting revenue and the Cash Basis for reporting expenses. Digital record-keeping has become essential for modern associations, offering advantages in accessibility, security, and cost-effectiveness. However, this digital transformation brings its own set of challenges and requirements.
- Keep in mind that you should never perform audits or reviews internally.
- It doesn’t hurt to see if they are in a position to offer discounts or deals to long-term clients, but if you don’t ask, they probably won’t bring it up.
- We offer the two market leading community management & accounting software used in the industry.
- This means you will only record income once you actually receive the payment as opposed to when you earn it.
- Using the modified accrual basis method, the association reports revenues when it earns them, just as with the accrual basis.
Community Association Management
- The cash basis accounting method does not include Assessments Receivable or Prepaid Assessments accounts on the Balance Sheet.
- The cost of living is always rising, which means the association’s electricity bill, or pool care service could be more costly next year.
- Some states are more specific when it comes to HOA accounting, while others have no such laws.
- With the Accrual Basis method of accounting, your HOA will record revenue and expenses as you earn and spend, regardless of payment status.
In terms of revenues, the association records them when it earns them, not when it receives them. An asset section of the Balance Sheet titled Assessments Receivable appears. As the association receives payments, the cash balance increases while Assessments Receivable decreases or Prepaid Assessments increases. The accrual method is the only basis of accounting that conforms with the Generally Accepted Accounting Principles (GAAP). Because you record transactions as you incur or earn them, you instantly know how well your HOA is doing financially. It produces the most comprehensive overview of your HOA’s financial status.
Far too many associations have made the mistake of deducting from their operating fund when they meant to deduct money from their reserve fund. It might seem like a small error, but it can throw your whole accounting setup into chaos. The key is to base fees on actual costs, including staff time, materials, and any necessary technology HOA Accounting expenses.
Financial oversight refers to the processes and strategies used to manage an HOA’s funds responsibly. It ensures that assessments are collected, expenses are tracked, and financial reports are accurate and transparent. Without proper financial oversight, an HOA may face cash flow issues, unexpected expenses, and even legal trouble.
Why is great HOA accounting so important to communities and management companies?
A yearly assessment of vendors will reveal if each contract is still providing a useful service for your community and at the right price. It may also be useful to contact each vendor and discuss any potential changes in prices or opportunities to add services. Vendor contracts should be reassessed regularly to ensure their prices are still in line with your HOA’s budget. The ubiquitous Quickbooks may be the first software that comes to mind, but an HOA requires more nuance than it can accomodate. Since Quickbooks was not designed with HOAs in mind, you’ll have to adjust your processes to mimic the structure of a business with invoices and customers. You will find as you learn the role that HOA accounting is different from other types of accounting.
