Homeowners Associations are required to keep many records, with financial statements being some of the most important. Adhering to financial statement requirements is crucial in providing transparency to members and ensuring that community funds are used legally and in the best interest of the association.
HOA Financial Statements 101
In a nutshell, an HOA Financial Statement is an official record that outlines the financial activities of the association. These statements should be detailed enough to provide a more complete financial picture and serve as an invaluable resource to the board in their decision-making processes. Financial statements should be prepared in a simple, reader-friendly format and made available to everyone in the community.
Components of a Financial Statement
Though they will vary from association to association, standard HOA financial statements should include the following:
Balance Sheet. This document will show the account balances, or net worth, of the association. The balance sheet should include assets, liabilities, and equities and give a general picture of the HOA’s financial health.
General Ledger. The general ledger sorts all of the association’s financial records by account number and date, and makes it easier for the board and members to look at all financial transactions in one place.
Receivables. Homeowner fees, vendor credits, and other money due to the association should be tracked and recorded. Receivables may also include upcoming or outstanding homeowner fees, including any that have been sent to collections.
Statement of Income. Otherwise known as the Profit-Loss Statement, this report tallies the HOA’s operating and non-operating profits and losses, including cash and non-cash gains. Accuracy is key, since the statement of income shows profitability and errors may result in unnecessary costs.
Reserve Funds. This portion of the financial statement details the account designated for long-term repairs and any replacements of community property, ensuring that the board is able to plan for and properly fund both planned and unforeseen projects.
Bank Statements. These statements should be included in the financial statement at the interval (either monthly, quarterly, or annually) determined by the HOA.
Financial Statement Frequency
How often financial statements need to be prepared will depend on your HOA and state regulations as well as the size of your association. A larger association with more complicated finances may choose to prepare statements on a quarterly or even an annual basis, while a smaller association may find preparing monthly statements more manageable. Whatever schedule is established, it’s important to maintain it.
The Value of Financial Statements
No matter the size of the association, preparing financial statements cannot be overlooked as one of the most important responsibilities in HOA management. Reliable, accurate and detailed financial statements are critical to the success of any HOA, and are foundational in building trust and a solid relationship between the board and homeowners.
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