In some states, it is a legal requirement for HOAs to maintain and submit regular financial statements. It is a good idea to keep detailed records anyways as they will be extremely beneficial for all other aspects of homeowner’s association management. There is also a multitude of services available from CSM to help homeowner’s associations organize and prepare their own financial statements. Homeowners have a plethora of rights against an HOA, including the Right of Possession, the Right of Control, the Right of Exclusion, the Right of Enjoyment, and the Right of Disposition. This could be either your HOA management company or a Certified Public Accountant (CPA).

For cash transactions, this includes the date, payee, amount, and description. For checks, the check date, check number, payee, check amount, the invoice number, and a description of the expense are required. An Accounts Payable Report and Accounts Delinquency Report must also accompany the ledger. A General Ledger serves as your method of tracking all financial transactions.

What Is a Financial Statement Used For?

The modified basis (also referred to as modified accrual basis) is a combination of the cash and accrual basis of finance management. In this method, revenues are recorded when earned (just like accrual) but expenses are recorded when paid, rather than when incurred (just like cash basis). The cash basis of financial records income and expenses when the cash is received, as opposed https://www.bookstime.com/articles/invoice-financing to when the transaction is made. 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). According to Civil Code Section 5500(c), the Board of Directors must review the current year’s actual expenses and revenues compared to the year’s budget at least quarterly.

Though it doesn’t exist to earn a profit, an HOA does earn revenue and incur expenses, as well. The HOA board has a responsibility to protect the association’s assets and manage its finances. Therefore, you should practice proper accounting and financial management to ensure your HOA remains in good financial condition.

Top 5 HOA Audit FAQs

In contrast, if the homeowners association intends to pay the expense in the future, that credit will be a liability called a payable. Eventually, when the payment is made, the payable will be written out as a debit, while a deduction to cash will be made as a credit. Regardless, interested individuals don’t need to understand every single aspect of hoa accountings. After all, they have the option of entrusting such matters to reliable and reputable accountants. However, interested individuals should still develop at least some understanding of accounting basics because that will make it much easier for them to follow everything around them. In conclusion, the accrual basis of finance management is the only method accepted under the GAAP.

At the same time, an asset titled “Assessments Receivable” is reported on the Balance Sheet. As payments are received, they increase the association’s Cash balance while either reducing Assessments Receivable or increasing Prepaid Assessments. Contrary to public opinion, an audit will not provide assurance that the financial statements are free of fraud.

How to Handle the Legal Rights of Homeowners Against HOA

If you’re on the hunt for an HOA management company, our online directory lists the best ones by location. Accounting is arguably one of the most challenging aspects of managing an HOA community. Yet, HOA accounting remains an integral part of your job as an HOA board member.

The key is to ensure that your HOA or condo association is receiving the most efficient features and services for its needs. When you have the most effective systems in place, the financial management service for your HOA or condo ends up paying for itself. The HOA acronym stands for “homeowners association” – an organization that is responsible for creating rules and maintaining order in the community it represents.