Because of privacy concerns, some information should go only to board members. Title professionals should scrutinize the ledger for significant or unusual expenditures that could impact the HOA’s financial stability. Assess whether the disbursements align with the community’s needs and budgetary allocations. Key metrics in the Payable Report include total hoa accounting outstanding payables, average payment period, and aged payables. These metrics help assess the HOA’s payment efficiency, identify potential cash flow issues, and highlight any long-standing debts. 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.
Accrual Accounting is an accounting method that measures the performance and position of a company or business entity by recognizing economic events regardless of when cash transactions occur. The general idea is that economic events are recognized by matching revenues to expenses (the matching principle) at the time in which the transaction occurs rather than when payment is made (or received). This method provides a more accurate picture of the company’s current condition, but its relative complexity makes it more expensive to implement. This is the opposite of cash HOA accounting, which recognizes transactions only when there is an exchange of cash.
It highlights the association’s financial stability and operational efficiency, indicating whether the HOA maintains a healthy balance between income and expenditures. Assess the impact of these variances on the HOA’s overall financial health, particularly in relation to reserve funding and special assessments. Look for patterns or trends that could affect property values and transaction viability. Another tip when evaluating the balance sheet is to compare current balance sheets with previous periods to identify trends and assess financial performance. It offers transparency to homeowners and potential buyers about the HOA’s financial status and the association’s financial management and performance.
An HOA management software, though, can assist with this and with many others. But, the importance of an accurate HOA balance sheet goes beyond the requirements of the state or your governing documents. As previously stated, the balance sheet provides you with a snapshot of your association’s financial health. It allows you to see whether or not the HOA is in stable condition, at least in the sense of its finances. With the balance sheet, you can determine if your association has enough money to pay for its obligations and debts.
Liabilities are amounts owed by the HOA to other people and companies. Like assets, liabilities can be divided into current and non-current liabilities. This is why it’s called a balance sheet – the report should be balanced if the money coming in and money going out was properly tracked.
Using the same example from above, the smaller HOA would have an equity ratio of 63% while the larger HOA’s ratio would be only 5%. When listed as a ratio, it becomes quite clear which HOA is more financially sound despite having the same total equity. Reserves highlight https://www.bookstime.com/ how much you have contributed into or taken out of your reserve (savings) fund. Also, capital project expenses may also be taken directly from this account. If you’re on the hunt for an HOA management company, our online directory lists the best ones by location.
Of course, since you will still need to manually input invoices and other financial transactions at times, there is still some room for mistakes. Overall, though, HOA software can prepare more accurate balance sheets. In addition to better accuracy, HOA software also helps prevent fraud since it is harder to fake the numbers.
You record financial transactions in your general ledger, which you then use as a reference when preparing your HOA balance sheet. During this process, though, you can commit mistakes and end up with an inaccurate report — and you already know how dangerous it can be to work under a financial misconception. 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.
When your Accounts Receivable line on the balance sheet is too high, it becomes important to review you’re A/R Aging Summary Report and see which homeowners are delinquent in their monthly payments. Your maintenance dues are your primary source of income, so it is important to stay on top of your overdue owners and take firm and consistent action to collect. Your Property Management Company should have procedures in place, such as late letters, email/phone calls and eventually attorney lien/eviction procedures in place to help you manage. Although you can rely on manual accounting processes, the advent of management software has made it infinitely more efficient and convenient to stay on top of your HOA’s finances.