Understanding An HOA General Ledger

It organizes revenues, expenses, assets, and liabilities, helping you keep track of financial transactions and understand your business’s financial health. When creating the association’s chart of accounts and expense accounts, it’s always best to be as specific as possible. For example, when tracking sources or https://www.bookstime.com/ revenue, don’t group it all into one account. While this seems like more work, this documentation strategy will pay off in the long run.

• They will check the records to ensure they comply with basic accounting principles, verify transactions to confirm the accuracy, and identify errors or inaccuracies.
• If you need to go back and see how much the association spent on landscaping in August three years ago, you should be able to find it in the ledger records.
• Instead, the Chart of Accounts provides an organizational map of your accounting structure.
• For example, California requires a monthly reconciliation review of all finances while many other states do not require any financial reviews at all.
• Ever feel like your association budget would be just fine if it didn’t have to deal with unit owners that didn’t pay on time?
• The Accrual Method, on the other hand, records income and expenses as they are earned or incurred, regardless of the cash flow.

Why Accrual Accounting for HOAs Is the Best

When you fail to budget your expenses properly, the HOA might run out of money. This will inevitably force your board to either take out a loan or charge special assessments to homeowners. And, if you have any experience with HOAs at all, you’d know that homeowners hate having to pay special assessments on top of their monthly dues. A well-organized chart of accounts helps property managers categorize and record financial transactions accurately. This practice simplifies financial reporting, aids in budgeting, and allows for better financial analysis, making it easier to manage properties efficiently.

What are the accounting standards for a homeowners association?

• So it will be much easier to make sense of them if you list accounts in a logical order.
• This includes the association’s operating accounts, reserve accounts, and other financial accounts.
• Good accounting is critical to the health and happiness of every HOA development.
• The Modified Accrual Basis uses elements of the Cash Basis method depending on the longevity of the assets (short term or long term).

Yet, HOA accounting remains an integral part of your job as an HOA board member. Of course, you will have to add new line items for new transactions, but each new item should be sorted into existing categories that follow the coding system you set up. If the idea of updating a spreadsheet is unappealing, there are, of course, software solutions that automate accounting processes and keep your books much more secure than a spreadsheet ever would. To do that, assign each property a number in the 1s place of your accounts. So, your property at 123 Elm St. would be assigned hoa bookkeeping 1101 for rent and 1201 for HVAC fees.

• Then we will mail out a welcome letter to owners with payment options, our contact info and how owners can set up online access.
• The Other home office expenses category is applicable in QuickBooks Self-Employed (QBSE).
• Income Accounts are used to categorize money that is owed to you, which for HOAs mainly consists of owner assessments, but can include other types of income such as pool key income or bank interest.
• The following reports are necessary for understanding how much money is coming into and going out of your homeowners association’s accounts.
• Not all expenses take place every year, but you should still plan for them to be categorized under the same account regardless of when they occur.
• Of course, the best accounting software for a small HOA may or may not be the same as the package you’d choose for a larger community.

What’s the best free HOA management software?

Not all expenses take place every year, but you should still plan for them to be categorized under the same account regardless of when they occur. Don’t use “Events Income” one year and then “Income from Events” two years later. Understanding the laws special to your state will save you a lot of time and trouble. It can also protect your association and board from potential legal issues. It depends retained earnings balance sheet on your state laws and what your governing documents say.

HOA Accounting Methods:

Some small HOA software providers offer free customer plans, but these tend to contain extremely limited feature sets. The essential purpose of these free HOA software plans is to attract customers’ attention so providers can sell a full-featured alternative. Better yet, look for other providers that create free trials so communities can evaluate their software. Typically, these trials include access to the provider’s full feature set for a limited time.