Understanding the HOA Financial Statements: The Income Statement

by artesianwell

how to read hoa financial statements

Compare these figures with the expenses to avoid losses and ensure your HOA is fiscally sound. It lays the foundation for sound financial reporting, allowing members to track every dime spent or received. When analyzing a general ledger, check the income and expenses for consistency. Most importantly, having detailed financial statements readily available to all HOA members can promote transparency between the board and the community. If the homeowners can see what their money is going towards, they will be more agreeable and open with the board of directors. There are also a multitude of services available from CSM to help homeowner’s associations get organized and prepare their own financial statements.

HOA Financial Reporting Made Easy:Your 5-Step Guide

For starters, if records are kept consistently, association directors can look back on previous financial years to identify patterns that could affect the current budget and adjust accordingly. If detailed records are not kept, it can be near-impossible to keep track of delinquent dues or know how much money is available to budget for community maintenance and new projects. There are lines that show if there are checks or payments that have not cleared as well as the current account balance – but the #1 most important line to look at is the “Difference” line. Understanding members’ equity is essential as it provides insights into the association’s financial stability, impacting everything from property values to the HOA’s ability to meet future financial obligations. The HOA Cash Disbursements Ledger is a financial record that details all cash outflows or payments made by a homeowners association.

General Ledger

  • Therefore, it provides a clearer picture of how expenses and income are actually occurring.
  • In the end, you are protecting your homeowner association’s funds and serving your fiduciary responsibilities to the highest level.
  • This may involve hiring an independent auditor to conduct regular audits to verify the accuracy of financial records and compliance with relevant laws and regulations.
  • Most HOAs are classified as non-profit companies, with bylaws and declarations that require a board of directors.
  • It can also protect your association and board from potential legal issues.
  • Just like in the Balance Sheet lesson, this association has two funds and this Income Statement displays both funds side by side.

Our previous blog post reviewed the basics of understanding the HOA balance sheet, an integral component of HOA financial statements. Today, we will cover another essential financial document – the income statement. This statement provides valuable insights into an HOA’s revenues, expenses, and overall financial performance, making it a must-understand tool for HOA board members and residents. 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.

How to Review Your HOA’s Balance Sheet

It presents the HOA’s assets, liabilities, and equity — all in one neat report. It is called a balance sheet because the association’s total assets should equal its total liabilities and equity. “The biggest issue we see is that we sometimes don’t get detailed account ledgers,” she explains.

  • You must have a sound understanding of these standard financial statements for HOAs.
  • An HOA manager is tasked with administering the finances of the association.
  • If you’re on the hunt for an HOA management company, our online directory lists the best ones by location.
  • The CPA will assess materiality during the planning stage to make sure that sufficient audit procedures are in place to detect material misstatements.
  • At the same time, there should be strict rules and proper fines against members not paying the HOA fee, as that can also bring about special assessments.
  • By law, the Reserve Fund must have a separate bank account, but in other cases you can have different HOA accounting funds for all the money that are in one bank account.

What Are HOA Reserve Studies?

Understanding the basics can help an HOA keep track of the association’s fiscal activities and ensure accountability. Whether you are a seasoned or a rookie member, this guide explains how to read HOA financial statements. To make a great plan, it is important to have all the information possible. Keeping members in the dark only promotes mistrust and working with inadequate or no financial information can lead to dwindling reserves for community upkeep and new projects. There is no standard frequency that HOA financial statements must be prepared. It will depend on state regulations, community goals, and the size of the community.

how to read hoa financial statements

Cash Disbursements Ledger

Without extra information cluttering it, this report shows who is behind on their assessments and how long they have been owing. No matter how great your memory is, remembering all your debts is a nearly impossible task. Homeowners associations work with all kinds of vendors and service companies.

  • Accounts receivable include collections, credits from vendors and any other payments for services offered by the HOA.
  • HOAs typically do not have COGS in their income statements because they primarily provide services, not goods.
  • HOA financial statements provide a comprehensive overview of the association’s financial activities, including income, expenses, assets, and liabilities.
  • This knowledge will help owners understand how the association is doing financially and be able to determine whether the board is doing its job well.
  • After all, some communities need to earn extra money for the benefit of the community, too, like a Father’s Day buffet or Halloween costume party.

how to read hoa financial statements

The most common mistake that people make when preparing HOA financial statements is not adding enough detail. Every detail that can be added, no matter how small, can provide a more thorough hoa accounting insight and lead to better decision making. If you are having trouble preparing community financial statements, the professionals at CSM are standing by to answer all your questions.

how to read hoa financial statements

You can also give multiple online payment options to your members to automate the process further. Some of the best platforms are Braintree, Payline, 2Checkout, Stripe, etc. However, as we said, the HOA management software can do this function too. So the best is to update electronic statements on the HOA member login website and upload statements there.

Therefore, it provides a clearer picture of how expenses and income are actually occurring. An income statement, also known as a profit and loss (P&L) statement, highlights the association’s financial performance over a specific period, typically a month, quarter, or year. This is important for board members to understand because the income statement outlines the association’s revenues and expenses, showing whether the association is generating a surplus or operating at a deficit.

An Accounts Payable Report is a financial document used by HOAs to track outstanding bills and debts owed to vendors, service providers, and other entities. This report details the amounts due, payee names, and due dates, providing a snapshot of the HOA’s short-term financial obligations. Simply stated, this is when a knowledgeable CPA performs financial tests to obtain reasonable assurance that the financials statement are free of error (often called material misstatement). Because of the audit complexity, we will address below the top 5 audit questions that we get asked. It’s important to note that in a review, the CPA will only perform limited procedures and generally not confirm amounts with outside parties.

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