So you’ve just become an association manager. Congratulations! Leading a homeowner association (HOA) can be a very rewarding experience. You’ll be personally involved in the success and growth of your client’s community. But to provide the best possible service to the associations you manage, you’ll need an in-depth understanding of HOA bookkeeping.
Although association management software like CINC Systems provides valuable accounting features, it helps to familiarize yourself with basic financial functions. Even if you’ve done accounting for yourself or another business, you still need to educate yourself in the unique financial needs of an HOA. Bookkeeping for HOAs presents different challenges because it involves multiple people and shared interests.
Be prepared to handle an association’s daily finances as well as unexpected situations, like homeowner bankruptcy, expensive repairs for common areas or even fraud among board members. You’ll certainly learn a lot as you gain management experience, but in the meantime, here’s what you need to know about bookkeeping for HOAs.
Understand the Balance Sheet
First, you need to understand an HOA balance sheet. Accurate reporting is crucial to maintaining the finances of any business, but it’s especially important for an association with multiple members. You’ll need to pay close attention to daily, monthly and annual numbers. Understanding of an association’s balance sheet will ensure that your client always stays within their budget and make good financial decisions.
An HOA balance sheet gives you a snapshot of an association’s fiscal health. It will show how much money is currently in the HOA’s bank accounts and compare your client’s assets to their liabilities. An HOA balance sheet will list items like insurance payments, bills, resident fees, petty cash, compounded interest, and any equity in the HOA’s reserve accounts.
Statements of Income and Expenses
Statements of income and expenses are an important association management tool. These reports show all of the association’s financial transactions for a given time period, usually on a monthly basis. You’ll be able to compare the HOA’s expenses and see if they are over or under budget for the month.
These statements also track the association’s income in the form of resident fees, investments or loans. Use income reports to verify your client’s financial standing and update their budgets accordingly. You and your clients can examine the income and expense statements to make more informed decisions on future projects.
General Ledger Accounting
Next, learn about general ledger accounting. A general ledger isn’t the most exciting part of managing an association’s finances, but it’s one of the most important tools at your disposal for HOA bookkeeping. General ledgers can take many forms depending on the accounting software you’re using, but they all have the same basic features.
An HOA’s general ledger will contain all of the associations’ financial transactions. It will list these transactions in numerical order and date of occurrence. Depending on the accounting software you use, you may also be able to sort the general ledger by income/expense categories or other variables. No matter how you use this data, general ledger accounting offers a hyper-detailed look at the finances of the association you manage.
Also known as a check register, a cash disbursements register keeps track of all the checks an association writes. This will include information such as who the check was issued to, the date it was written, the account it’s withdrawing from, and the check number. When applicable, there will also be a record of specific invoices or bills being fulfilled.
As with an HOA’s statements of income and expenses and general ledger, cash disbursements allow you to monitor association transactions very closely. Although most payments today are made online, a cash disbursement ledger is still very important in the event of an audit or financial issues such as fraud.
Accounts Payable Reporting
Accounts payable is the next item to understand when you’re learning how to take care of HOA bookkeeping. This refers to any unpaid expenses for the association, such as invoices for repair work, utility bills and municipal fees. Accounts payable reporting keeps the HOA aware of every expense that needs to be paid in the current month.
This type of reporting can also include a delinquency report. A delinquency report will include HOA residents with unpaid, overdue fees. It can also keep a record of any other institution that owes money to your client’s HOA.
Manage Accounts Daily
Once you understand the unique features of each bookkeeping method mentioned above, the real work begins. Use HOA accounting software like CINC Systems to start managing your client’s accounts. Dedicate just 20 or 30 minutes a day and you will understand how to monitor the money going in and going out of the homeowners association.
Most financial issues can be avoided by simply monitoring the HOA’s financial accounts. Watch for unfamiliar invoices, double charges and any other suspicious activity. The sooner you catch a problem, the sooner you’ll be able to solve it.
Prepare for Annual Audits
When you hear the word “audit,” most people immediately think of the IRS. But an audit isn’t always initiated because of taxes and it isn’t always a huge headache. In fact, an annual audit can ensure an HOA is in good financial standing for years to come. Some associations require an annual audit as part of their rules and regulations. Even if the association you manage doesn’t require this, we recommend doing a yearly review anyway.
Find a reliable CPA to perform an all-inclusive audit. Provide them with reports generated by HOA accounting software, like the custom reporting available from CINC Systems. There is a huge advantage to using an online accounting system. The CPA will be able to pull reports directly from the accounting software without taking up your time to run them! The CPA will also check for accounting errors and verify your bookkeeping. Additionally, you can request a “positive assurance” to guarantee the accuracy of your financial reports and confirm the HOA’s financial health.
Use CINC Systems to Make HOA Bookkeeping Easier Than Ever
HOA bookkeeping doesn’t have to be complex or overwhelming. By learning the basics and practicing due diligence, you’ll be able to manage any association’s finances without problems. But you can make your job even easier with CINC Systems. The CINC Systems platform offers multiple accounting tools for the HOA you manage. Try a free demo now.