What’s Inside An HOA Balance Sheet And How To Understand It LCM

hoa balance sheet example

You don’t need a fancy report but you should have something that shows how much money you have set aside and the anticipated cost for replacements and larger capital projects. This report is far superior than looking at a capital/ reserve bank account which can be deceiving. You may think you have a lot of money saved but if you had a big roofing or paving project hoa accounting it could be wiped out with no funds for other projects. 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 insight and lead to better decision making. You may be required to have an annual HOA, so you don’t have much choice.

What Is an HOA Audit?

You might end up overspending and making poor financial decisions as a result of inaccurate records. Heywood HOA Management has actively been a part of Arizona’s Real Estate market since 1933. With a single focus on community association management, Heywood Community Management is dedicating its resources to raising the community management standard of quality. Accuracy is key when preparing financial statements; just one small typo could distort an entire financial report. This could lead to the misconception that the HOA has more assets or fewer debts than it really does.

What Are the Benefits of Knowing How to Interpret Financial Reports?

It is called a balance sheet because the association’s total assets should equal its total liabilities and equity. When it comes to HOA money, it’s not worth it to take risks or wait and see what happens. Coupled with other financial documents such as income and cash flow statements, a well-maintained balance sheet can empower board members and homeowners alike to make informed decisions.

How To Read HOA Financial Statements

  • The balance sheet helps the HOA board, management, and homeowners understand where the association’s money is coming from and where it’s going.
  • For homeowners, understanding HOA financial statements will let them stay on top of the association’s financial condition.
  • If not, you can then either adjust the budget going forward or see about limiting your spending on certain services.
  • It provides you with a different perspective and specifically showcases how cash flows in and out of your association.
  • It could include dues from homeowners, rental income from a facility, etc.
  • Accounting is arguably one of the most challenging aspects of managing an HOA community.
  • After all, even experienced professionals aren’t invulnerable to committing mistakes.

This blog post covers the different elements of an HOA balance sheet. You will also learn how to generate one efficiently and identify issues when it doesn’t balance. It should not have too many receivables, especially overdue receivables, as that would mean the board is not putting a lot of time into collection efforts.

hoa balance sheet example

HOA Finance 101: How to Read HOA Financial Statements

  • This allows you to keep a tight leash on your finances and make adjustments when necessary.
  • Promoting financial literacy among HOA members is also important, empowering them to participate in financial discussions and decision-making processes.
  • This HOA financial report also tells you whether or not you’ll need external financing measures.
  • No matter what decision is made regarding frequency, it must be maintained.
  • To measure your HOA’s ability to pay its short-term liabilities, you can divide current assets by current liabilities.
  • HOA accounting can be very confusing — enough to make you use the wrong accounts when recording revenue and expenses.

If your HOA has an income statement, you can use that to create a balance sheet. Start by adding up the total revenues, then subtracting all expenses. The balance remaining should match the balance on your balance sheet. Start by calculating the total value of all the assets owned by your HOA.

Sample Comparative Income & Expense Report

hoa balance sheet example

In such cases, it is a good idea to use a professional accountant to ensure that HOA financial statements are prepared correctly before releasing them to board and community members. Remember, just because someone was elected treasurer, does not necessarily mean they have accounting experience. Large homeowner’s associations have more complex budgets and will usually have a management company, such as CSM, that handles all financial data. Though it may seem overwhelming or confusing, it’s not something to be quickly gazed over.

hoa balance sheet example

When should an HOA consider an audit?

  • On first glance, the main columns to pay attention to are the ones which show if the actual expenses for each maintenance category are similar to the budgeted amount.
  • It will also inform the board’s discussions when it comes to the association’s finances, allowing them to make sound financial decisions.
  • It could mean you are not correctly budgeting and forecasting your income and expenses.
  • But, it becomes more difficult to find mistakes or significant points when these documents are only produced once a year.
  • If only one person understands these reports, then it would be easy for that person to cook the books and steal money from the HOA.

It tells you how your association can fulfill immediate expenses like employee salaries. Moreover, the Cash Flow Statement lets you know if you can raise the cash necessary for cash expenditures. This HOA financial report also tells you whether or not you’ll need external financing measures. While you can generally update your balance sheet any time you like, it is good practice to do so at the end of every month. This allows you to keep a tight leash on your finances and make adjustments when necessary.

But it usually makes sense to have an audit every several years just to make sure that the association has reasonable controls in place for accurate financial reporting. In a financial audit, the CPA must understand the fraud risk and the internal control processes. The CPA must also corroborate the account balances and financial statement disclosures. Another consideration to the audit frequency, is the association’s size.