One of these, the Balance Sheet, is particularly important for a comprehensive understanding of an HOA’s financial health. When it comes to managing a homeowners association (HOA), knowing the financial health of your organization is crucial. These documents show the association’s financial standing, allowing board members to make well-informed decisions and keep the community running smoothly. Far too many associations waste time fumbling with financial reports when they could be focusing on maintaining the community and keeping residents satisfied. HOA software largely automates accounting processes, allowing your board to save time. Relying on software is also more convenient since you don’t have to worry about confusing financial terms and calculations.
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If the amount is positive, your association has enough assets to cover its liabilities. However, if the number is negative, your liabilities exceed your assets. This category outlines every asset representing a long-term investment for your homeowners’ https://www.bookstime.com/ association. These are usually the items you can’t convert into cash within a short period of time. In a balance sheet, you will usually see assets listed in order of liquidity. The items are sorted based on how quickly you can convert them into cash.
How Often Do Financial Statements Need to be Prepared?
Additionally, proper reserve planning is important when securing competitive insurance rates and for refinancing your own individual mortgages. Liabilities include payables (money you owe other vendors), accrued expenses (expenses not yet paid but anticipated)and loan balances. The numbers on a balance sheet don’t just magically appear out of thin air.
The Current Ratio Formula
It can also be a tool for examining your associations reserve funds and anticipating those needs. This basic guide will help you know how to effectively read your balance hoa accounting sheet so that you can gauge the overall financial health of your association. Using the Cash Basis of Accounting, you record income and expenses when money changes hands.
Ensure Accuracy and Legal Compliance of HOA Financial Statements With Heywood Community Management
- Prepaid Revenues are Liability Accounts because the association has not “earned” the money yet.
- For example, if spending isn’t carefully tracked or the reserve fund is too low, the association may end up levying a special assessment or taking out a loan to cover future costs.
- When your HOA has positive equity, it means your association is in good financial condition and has enough money to cover its debts.
- As with most financial statements, the more often balance sheets are created, the more insight they will offer to the board.
- Here, you’ll need to determine the level of equity relative to the association’s total assets.
- Both balances may need adjustment in order to report the true amount of cash.
Then, when they actually receive the March/April bill, they need to go back and make adjusting HOA accounting entries so that the actual March expenses are shown on the Financial Statements. Since the bookkeepers need to make more entries, the cost of maintaining the books increases. That being said, it may be acceptable to release balance sheets every quarter or on an annual basis. But, it becomes more difficult to find mistakes or significant points when these documents are only produced once a year. 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.
HOA Monthly Balance Sheet Template
This report is a great tool to ensure you are not a victim of embezzlement (for more on this see my Community Embezzlement Case Studies). Many homeowners and board members find themselves looking at financial reports only to realize that they do not understand what they are looking at. Truth is, not all of us have experience or education in reviewing numbers and reports. If you are a Board Member though, it is your fiduciary responsibility to oversee the financial health of your community, making sound and diligent decisions with your homeowner’s money. You may receive many monthly reports from your Management Company, but let’s review the top five most important, what they mean and potential watch outs. It lays the foundation for sound financial reporting, allowing members to track every dime spent or received.
- This document provides detailed information about the association’s income, expenditures, assets, debts, equity, and overall financial position.
- Even though HOAs are non-profit organizations, they still need to generate revenue to pay for expenses.
- Additionally, in some states, it is mandatory for HOAs to prepare such statements and distribute them to their membership.
- When dealing with financial information, it is best to be open and honest in as much detail as is appropriate.
- As a title professional, you should examine the ledger for consistency in income and regular expenses and look for unusual entries that could indicate financial mismanagement.
- The Income Statement is meant to inform how the association is doing compared to budget.
HOA & Condo Communities: Understanding Your Financial Reports
- The Association’s General Ledger contains a record of the transactions (checks written, receipts from customers, etc.) that involve its checking account.
- A large part of your responsibility is your fiduciary responsibility to the community.
- The more information your board has to work with, the more effectively they can manage the community.
- This report is a great tool to ensure you are not a victim of embezzlement (for more on this see my Community Embezzlement Case Studies).