In a self-managed HOA, the elected treasurer or financial officer of the HOA is responsible for preparing and compiling financial documents, as well as recording them on a financial software program such as QuickBooks.
However, just because someone was elected treasurer does not mean they have accounting skills and experience necessary. In such cases, it is best to enlist the help of a professional accountant to ensure that HOA financial statements are correctly prepared.
If statements are self-prepared, make sure to back up all financial records. In the unfortunate event that the files are deleted, become corrupted, or the preparer can no longer maintain their responsibilities, the board still has a copy of their financial records.
Large HOAs that have more complex budgets usually hire a management company to prepare financial statements.
How often the board should prepare HOA financial statements depends on state regulations, community goals, and the size of the community. Smaller HOAs with simpler budgets can prepare monthly. Larger HOAs may prepare statements quarterly or annually.
What goes into a financial statement?
- Balance sheet
- Statement of income and expenses
- General Ledger
- Cash Disbursements Ledger
- Accounts Payable Report
Other financial statements also include the following as basic elements:
- Bank reconciliations
- Bank statements
- Check history report
- General ledger reports
Other supporting schedules are also common, including delinquency and prepaid reports, both of which are collections related.
The balance sheet shows the association’s net worth: the assets of the association minus the liabilities. This gives the reader an idea of the HOA’s financial condition.
Assets include cash, investments, accounts receivable, current assets, and fixed assets, and remaining values on unused insurance.
Liabilities refer to money that the HOA owes such as an unpaid water bill, a loan taken out for a project, or your HOA management company fee. Liabilities also include money that you have received but that you have not yet earned (e.g. prepaid assessments).
The balance sheet should also include a portion for equity, which is the balance of your HOA’s reserve account.
Statement of Income and Expense
The statement of income and expense contains the actual amount spent for the month, compared to the budgeted amount for that month. It also shows the difference between the budgeted amount and the actual amount spent.
This information is used by the board to determine if there are any categories that need to be worked on or fixed, as well as to plan for future expenses.
The general ledger lists each transaction in numerical order (chart of accounts) and occurrence (date order). This detailed information allows the board to track the financial transactions for the association.
Cash Disbursements Ledger
The cash disbursements ledger (or check register) informs your board members of checks written. It should contain the following information: who the check was written to, the check number and date written, the invoice number, a chart of the account number (budget code number) and description of expense, an accounts payable report, and an account delinquency report.
Accounts Payable Report
The accounts payable report shows the money the HOA owes to its suppliers. It informs the board of expenditure obligations in the current month.