When done properly, HOA financial statements provide both board members and residents with a clear picture of the association’s finances. They’re there to make budgeting and planning easier. But what exactly are the essential financial statements an HOA should have?
What are HOA Financial Statements?
HOA financial statements are documents that show the official records of your homeowners’ association’s financial activity and overall status. In many communities, these records help both the HOA board and homeowners to clearly understand how funds are being collected and used.
Types of HOA Financial Statements
There are several types of these statements, each showing a different aspect of the HOA’s financial activity and status. They help your association evaluate your community’s financial health and plan appropriately for how to use the funds.
Balance Sheet
This document shows the HOA’s financial situation at a specific point in time. It includes the association’s assets and liabilities, along with the amount of funding or equity it has at that point. Simply put, it shows your community’s net worth.
The balance sheet also follows a formula:
Assets = Liabilities + Equity
Assets shown in the balance sheet are split into two categories: current assets and non-current assets. The former are items the HOA can easily convert to cash within the year. Meanwhile, the other will take longer to convert into cash
On the other side of the equation are liabilities, which are items that the HOA spends its money on. Simply put, liabilities are your HOA’s expenses. Like assets, this also has two categories. Current liabilities are expenses that the HOA must pay immediately. Meanwhile, long-term liabilities are financial obligations that your association can settle even after a year.
Lastly, equity is the amount of money the HOA returns to shareholders after both assets are liquidated and liabilities are settled. It is computed using the following formula:
Equity = Assets – Liabilities
Income Statement
Also known as the Profit-Loss Statement, this financial document lists your HOA’s profits and losses for an accounting period. It includes both cash and non-cash gains and losses.
There are two components of income statements: operating and non-operating. This statement shows both HOA revenues and the total number of sales it makes. For the association, bookkeepers should tally and record all sales made by the HOA, such as ticket sales for HOA events or gate fees.
Meanwhile, the income statement shows all operating expenses incurred by the HOA. These may include the cost of goods and services, bank and rental fees, and employee salaries.
Cash Flow Statement
This type of financial statement details how money moves in and out of your community association. It helps show where your funds are coming from and where they’re going.
While it might seem similar to an income statement, there is one key difference: cash flow statements only record cash transactions. This movement usually involves only three HOA financial activities: the HOA’s daily operations, its investments, and its financing.
Simply put, this document shows the HOA’s liquidity and insolvency. It serves as a gauge of the HOA’s ability to fulfill its upcoming obligations.
General Ledger
Technically speaking, a general ledger is not a financial statement. Nevertheless, it’s still one of the most important financial records for an HOA. It should have all of your community association’s financial records. Having them all in one document helps your HOA monitor all financial activity without needing to look back and sort through receipts.
You can think of the general ledger as the HOA’s master financial record. The other financial statements refer back to it as a basis of comparison.
Accounts Payable
The accounts payable and receivable report lists all of your association’s outstanding debts for easy access. It’s your master list of everything your HOA owes, including essential information. It outlines how much your association owes and to whom you owe the funds to.
Some board members may think they can easily remember all the debts the HOA owes. But even with good memory, nothing beats recording and listing them down as a reminder. After all, associations work with many different vendors. Having this list ensures you’re on top of your debts while maintaining good relationships with these vendors.
Delinquency Report
Part of the HOA board’s function is to collect regular assessments and dues from your residents. However, not all homeowners can afford these fees. Sometimes, a few residents will forget to pay HOA dues, while a rare few will even refuse to do so. For these cases, your HOA needs to have a delinquency report. It helps keep track of all delinquent accounts in the community. It also shows all the accounts receivable of the association,
This type of financial report usually includes the resident’s name and the amount they owe. It also includes how long they’ve owed the money for. So residents may fall into several categories: current (those with no delinquencies); those who’ve owed fees for over 30, 60, or 90 days.
Cash Disbursement:
This type of report shows how much money your HOA is spending. It provides the board with a comprehensive look at the association’s investments. This report includes both cash and check transactions involved.
In keeping this record, you need to include the following details:
- Date
- Payee
- How much funding was spent
- What was the expense for
- Date when the check was issued
- Check number
- Invoice or receipt number
Reserve Funds Report
A part of an HOA’s finances is the reserve fund, which is in place to pay for large-scale and long-term repairs or replacements. To easily track this, HOAs should always keep an updated reserve funds report to monitor the count’s current balance and adequacy.
To streamline things, this report needs to be tied in directly with the HOA’s reserve study. It makes it easier to compare and assess whether the contributions set aside for the fund align with the projections in the study.
Best Practices for Keeping HOA Financial Reports
Part of maintaining good financial health for the HOA is ensuring you have accurate and transparent reports. To do that, you need to ensure consistency. The board of directors should always review these financial statements on a regular schedule, typically monthly. If you don’t monitor it for a while, errors can turn into bigger problems.
Some HOAs may have a bit of trouble keeping on top of financial reports. When that happens, don’t hesitate to seek professional help. Professional property managers and bookkeepers can offer support for boards when creating and monitoring their financials.
Finally, it shouldn’t be the HOA board that’s the only one that can see these reports. Homeowners should be able to know the financial status of the community they’re a part of. The HOA board can make this easier by ensuring all financial documents are organized for easy access.
Keeping Clear Reports
Properly keeping and reading HOA financial statements can seem complicated, but it’s actually easy to understand the basics. Each document shows a part of your HOA’s financial activity. Ensuring that these reports are accurate and consistent helps the board protect the community’s financial health.
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