Basic HOA Accounting: A Guide For HOA Board Members CSM

The first step to financial success is to use the best HOA accounting method. Given that there are three accounting methods that associations can choose from, you may wonder why most people favor the accrual basis of accounting. It is widely used among homeowners and condo associations since it provides you with a more accurate view of your finances. Additionally, this HOA accounting method is the only one that conforms with the Generally Accepted Accounting Principles (GAAP). Whether you’re in need of basic HOA accounting services or more, we make it possible like no other HOA property management company.

When using this method, the cash balance is the only balance that decreases. Some associations have it in their CC&Rs or bylaws that a certain method of accounting should be used when recording and preparing financial statements. Though, since HOA accrual accounting is the best, consider amending your governing documents if it asks you to use a different method. Check with your HOA attorney to see how you can amend your governing documents.

#5: Keep Communication with Boards Clear and Consistent

This gives you a better understanding of your association’s current financial standing. A homeowners association functions in very much the same way as any business organization. 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. The ledger is a key tool for tracking the HOA’s financial activity, preparing financial statements, and ensuring accurate record-keeping.

What Are Some HOA Accounting Best Practices?

It’s focused on simplifying a few key areas of HOA management, such as basic accounting, communication portals, meeting operations, and activity tracking. Integrated systems enhance the transparency and accessibility of information, as well. With so much riding on accurate bookkeeping, the right software can be a deciding factor in whether your accounting process is an asset or a liability for your business.

We work with the HOA software & tools you already use

Like many other options on this list, you’ll need to contact the company directly to get specific details on FRONTSTEPS’s pricing. For details, you’ll have to reach out to their team directly and request a quote. Giving members the ability to hoa accounting directly link their account to your payment system enhances the security and efficiency of transactions, reducing the administrative burden on the HOA.

• HOAs also maintain an operating fund, which is used to pay for day-to-day expenses.
• Choosing the right type depends on the size of the HOA, the complexity of its financial management needs, and the desired level of integration with other management functions.
• You may be wondering what effect this has on your financial statements.
• The best part is that effective HOA accounting doesn’t have to add work to your to-do list.

Software can also help create detailed financial reporting, which is also incredibly useful for tax preparation. It can categorize income and expenses in a way that aligns with tax reporting requirements, making it easier to identify relevant financial information for tax filings. Whether you’re managing condos or mansions, you need a reliable accounting software that will help you keep tabs on your expenses and collect fees from your members the right way. Double-entry accounting is a more advanced accounting system that gives you access to more information about your financial health. This system accounts for both the debit and credit made in each transaction. All your information is stored in the FreshBooks Cloud and protected by top-of-the-line security.

Timely reports also help them effectively allocate funds for projects and maintenance. When there’s a system of checks and balances, the association is able to make important decisions regarding homeowner accounts. The community manager should suggest an annual review or audit, which a CPA will perform. It’s important for the homeowners association to retain final authorization over replacement and transactions.

Plus, it’s also the only method that conforms with the Generally Accepted Accounting Principles (GAAP). Cash accounting might be sufficient for smaller HOAs with simple financial transactions. However, transitioning to accrual accounting is often advisable as an HOA grows and its financial matters become more complex. Some HOAs use this hybrid approach, which combines elements of both cash and accrual methods.

Generally, though, it is best to go with the accrual method for official reports. Simply put, accrual accounting remains the best HOA accounting method because it paints a more accurate picture of your association’s finances. And without accurate reserve funding, you may be forced to impose special assessments on residents, which can become a sizable financial burden.