All financial activity is monitored and recorded in HOA Accounting A number of potential outcomes for the homeowner association accounting and its board are possible as a result of poor financial management by the HOA.
For starters, poor HOA bookkeeping can lead to a severe financial crisis for the association. Inaccurate records could lead to financial mistakes, including overspending and poor decision-making.
Let’s go over some pointers for homeowner association accounting.
The best accounting method for homeowner management audit:
The Cash Basis technique is the most widely used of the three. That does, though, have several shortcomings. The Cash approach can be compared to a bank account, and all transactions involving money are duly recorded as they occur. It plays a crucial role in homeowner’s association management services. The Cash Basis is straightforward and simple to grasp, but it contains blind spots when it comes to delinquent bills or dues from the members of Homeowner association accounting. This results in an inflated perception of the company’s financial situation.
Because the combined procedure involves spending cash, the Modified Accrual Basis technique raises comparable concerns over the reliability of the HOA’s financial prospects. The Modified technique continues to be unreliable because association accounting places a high priority on accuracy.
The Accrual Basis technique is often the safest and best accounting standard to utilize out of the 3 techniques of HOA accounting. Simply put, it’s the greatest accounting technique for HOAs. Although first, it is a little complicated, it is the sole reporting method that complies with GAAP and therefore is regarded as the most accurate. This basis gives you a clearer and more comprehensive picture of the financial status of your organization.
Although your HOA must utilize the Accrual Basis for annual financial statements, you may use the Modified Basis or the Cash Basis for intermediate reporting needs. Civil codes should always be consulted because regulations differ from state to state. Your homeowner management services are responsible for properly handling the association’s finances. Otherwise, the members of the community can take legal action against you.
What are the HOA financial statements?
The following, is crucial following GAAP and the majority of HOA financial rules:
The HOA balance sheet contrasts the liabilities and assets of your association with owner equity. It provides a thorough analysis of your HOA’s net value, including your cash on hand.
The guiding idea of this statement—that your balance sheet must always be balanced—gives rise to its name. By extension, your assets must equal your obligations plus equity. The following equation explains it:
Asset = Liability + Equity
It’s elementary with this one. The revenue and costs for your company can be calculated by homeowner management services for the stated period are shown on the income statement (mostly for the month). It includes a list of all your receipts and outlays, subtracting the former to get your net profit or loss.
Cash Disbursement Ledger:
Each one of the cheques that your company has written and delivered for the defined duration is listed in the cash disbursements ledger. The report, also referred to as a check register, includes details, including the check’s receiver, the cheque date, and an explanation of the expenditure. It should list the cheque numbers, any relevant invoice numbers, and relevant account numbers.
Following the date of the event and a chronological sequence you specify, known as the HOA financial statement, the general ledger is where you keep track of all your financial activities. Each of your financial information is based on it.
Accounts Payable Report:
All of the association’s payables are listed in your accounts payable report. Therefore it includes all of your outstanding debt. This document has a delinquent counterpart that lists all the amounts owed to the organization and is typically referred to as the financial delinquency report.
What if Homeowner gets insolvent?
Your HOA committee should consult with your lawyer or administrative company as soon as a homeowner files for bankruptcy. Remember that insolvent homeowners are protected by some insolvency regulations. As a result, you might be unable to continue any ongoing legal proceedings with the homeowner or recover past-due sums.
However, it’s crucial to show respect for the insolvent homeowner. Recognize their predicament and avoid sharing their financial state with neighbors in the neighborhood. Additionally, it is not advised to cut off their services or limit their access to facilities while they go through a difficult time.
When it concerns safeguarding the interests of the neighborhood, homeowners association accounting (HOA) has a variety of duties to fulfill. With that involvement comes the use of the most effective accounting technique for HOAs. One must first choose the accounting basis to employ before establishing any HOA accounting rules. Simply expressed, the time of recording financial events, including revenues and expenses, forms the foundation of accounting.