Whether you are the CEO of a management company that controls dozens of HOAs or a board member of a small community association, your organization’s financial success may depend on your ability to communicate effectively with your accounting team.
Possessing a thorough understanding of the following homeowners’ association (HOA) accounting terms will ensure you and your team are on the same page when it comes to the success and growth of your community association or management company.
Accounts Payable (AP)
HOA accounts payable is money owed to vendors or other entities by your association. It is a form of credit extended by the supplier, with services being provided first and paid for later.
Accounts Receivable (AR)
HOA accounts receivable is money due to the community association, usually owed by homeowners in fees and assessments.
An audit is an in-depth examination of the HOA’s finances. This extensive review requires an independent accountant to review association documents, statements, invoices, and budgets to ensure accuracy and compliance.
An HOA’s financial health is summarized on a balance sheet, which lists its current assets, liabilities, and equity.
Bank reconciliation is a process that compares the balance shown in the HOA’s financial records to the same account’s balance, as reported on a bank statement. Reconciliation can uncover errors or omissions that may be causing a discrepancy between these two figures.
Capital expenditure is the disbursement of funds to improve or acquire capital components like machinery or buildings.
HOA collections are the process of gathering income that is owed to the organization. Collections may include methods to recover funds from delinquent accounts.
HOA demand fees are the unpaid debts that must be paid to the association before a homeowner can sell their property.
HOA fees are assessments paid to the homeowners’ association to fund everyday operational expenses like landscaping, maintenance, and insurance.
An HOA Financial Statement is an official record that details all the HOA or condo association’s financial activities.
When a homeowner or board member violates an HOA rule or regulation, they are issued a fine. HOA rules and the associated financial penalties for violation are spelled out in each community’s Covenants, Conditions, and Restrictions (CC&Rs).
Generally Accepted Accounting Principles (GAAP)
GAAP is a group of common accounting standards providing guidelines for the creation of financial statements and reports.
Integrated banking links HOA banking and accounting processes. For example, CINC Systems’ integrated banking software automates reconciliation, simplifies transfers, and provides one centralized platform to access statements and account activity.
Banks provide lockbox services to association management companies for customer payment remittals. Homeowner payments are retrieved from special post office boxes and then processed and deposited directly into the management company or HOA’s bank account.
The reserve account consists of funds set aside for the repair or eventual replacement of capital components. This could include re-paving a road in an HOA or a roof replacement in a condominium building.
An HOA reserve study is an organizational report used for managing the HOA reserve account. A reserve study is performed to analyze the reserve account’s present status and create a plan to grow it.