Let’s be honest — collecting monthly fees and assessments from homeowners can be tough. However, it can be twice as difficult when you have no records of their debts. The Accounts Payable report shows you all of the association’s unpaid expenses. The format typically consists of the vendors owed, the terms of payment, and the amounts owed. From here, you can determine whether the association has the funds to pay for these expenses.
When an association uses the cash accounting method, it is especially important to consider the long-term. There must be some way to review upcoming expenses to avoid making financial decisions based on what financial reports and balances indicate is available. It’s also important to have a realistic budget to avoid making decisions based on the income that may not be collected.
Let us also assume that it has vendors, all of which do work monthly and all of which get paid monthly. Let’s also assume that in one month 25% of the homeowners paid assessments late – they paid the next month, and that all of the vendors were paid monthly. Below is how the income statement for this association would look using both methods of hoa accounting. As you can see, under the Cash Method of HOA Accounting it would appear that the association lost money in the first month, and made a profit in the second month. Using Cash HOA Accounting makes it difficult to see if income and expenses are as expected.
Sometimes the bank decreases the company’s bank account without informing the company of the amount. For example, a bank service charge might be deducted on the bank statement on August 31, but the company will not learn of the amount until the company receives the bank statement in early September. From these two examples, you can understand why there will likely be a difference in the balance on the bank statement vs. the balance in the Cash account on the association’s books. It is also possible (perhaps likely) that neither balance is the true balance.
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This means the association reports them as it pays for them, not when it incurs them. When an elected community member self prepares financial statements, make sure that there is a backup of all financial records. This type of report is all-inclusive and includes both verification and substantiation services. The CPA will verify the debtors and creditors on amounts owed and they will also inspect the homeowners association’s inventories. The CPA will also inspect the homeowners association’s contract for mistakes. This report has a positive assurance, meaning that the CPA guarantees that the financial statements are accurate and that your homeowners association is in good financial health.
Money used for the general maintenance of the HOA will be kept in the operating accounts, and money that the HOA is saving for future expenses will be placed in the reserve fund. The board should also review the general ledger report for each period, which records each individual transaction for each budget item and provides information about the recipient of (or person who paid) each listed amount. Maintain a positive relationship with homeowners by providing a flexible system for accepting payments. CINC Systems’ software also includes a collections module that automates communications and integrates collection agency data for real-time updates on delinquent accounts. The HOA board and association management’s functions include community building and business operations, but each party achieves its objectives differently. When an HOA board hires a management company, the roles of each party can be confusing.