Community association financial management is one of the most challenging and essential jobs for any homeowners’ association (HOA) board. Preparing an HOA financial statement serves several objectives, including financial transparency, insight into reaching organizational goals, and in some cases, it may be required by law.
The statement provides an official account detailing the community association’s financial activities. How often you need to prepare a report is contingent upon the HOA’s state laws, the community’s bylaws, and association size.
What Is Included on an HOA Financial Statement?
Specific details must be included on an HOA financial statement depending on community bylaws and state regulations; however, the following are items that should be on a financial statement regardless of community association location or size:
- Balance sheet — Showing the HOA’s assets, liabilities, and equity
- Bank statements — Detailing deposits and debits that have cleared the bank
- General ledger — Exhibiting all account activities
- Bank reconciliations — Balancing the ledger to the bank statements
- Receivables — Statements that include money still owed to the association
- Reserve fund balances — Money set aside to cover expenses on future projects or unforeseen shortfalls
- Statement of income — Detailed accounting of money coming into the HOA through assessments, dues, fines, and fees
Other supporting schedules that commonly go into a statement include prepaid and delinquency reports showing overdue assessments — both are collections-related.
Often, accounting teams fail to provide enough detail to their HOA’s financial statements. Every piece of information that can be included, no matter how small, can allow for more accurate decisions. If there is uncertainty over whether something should or should not be included, it is better to include it.
HOA financial statements should be prepared so that anyone can understand it. If they are too complicated, it could alienate some people, damaging relationships between boards and community members.
Using CINC Systems cloud-based accounting software allows you to produce polished, well-organized financial statements that anyone in the community can read.
Why Financial Statements Are Important
The community associations you manage need financial information to plan their economic futures successfully. Unwavering, dependable, and transparent financial statements are critical for HOAs to make smart decisions. These reports nourish community health by empowering each association resident and stakeholder to feel they can participate as a team member.
Unclear, inaccurate, or missing financial statements can confuse members and breed mistrust among community members and their board of directors. Reserve accounts can quickly become underfunded, creating difficulties for new projects and maintaining capital components.
Financial statements are also a crucial part of the HOA loan qualification process — if the HOA wants to procure a loan for a renovation project, for example. Additionally, the statements are vital for demonstrating to alert buyers that the association is financially sound. The reports are available through the escrow package, and homeowners have a legal right to them.
Accounting Software for Financial Statement Preparation
Using cloud-based accounting software like CINC Systems can help small and large associations produce professional financial statements consistently and on time. Improve transparency, accuracy, and efficiency with CINC Systems.