QUICK TIPS FOR UNDERSTANDING HOA FINANCIALS

What financial documents should I expect to get from my management company on a monthly basis?

The types of information the board receives from the management company will vary depending on your specific Association, but a typical package will include the following:

• Balance Sheet
• Income Statement (month and year to date actual numbers and year-to-date or annual budget numbers)
• Bank reconciliations and bank statements for all bank accounts
• Check register
• Delinquent assessment receivable report
• Accounts payable report (If accrual based)
• General Ledger for the month

Fund Accounting   -   What is meant by fund accounting?

Most HOAs use fund accounting, which means you have separate accounts or “funds” to track money.  HOAs usually have at least two funds - Operating and Reserve. However, you may have additional funds such as a Special Assessment Fund.
It is important to understand that the money for each fund, and it’s related revenues and expenses, should be kept within it’s own fund. You don’t want to co-mingle funds.  Even though the HOA is one company, each fund is like running a separate company within the parent company (HOA).

Balance Sheet
The Balance Sheet (BS) tells you what you own, what you owe, and the net worth of the Association at a given point in time.

Here are a few quick tips for understanding the Balance Sheet:

• Total Assets should equal Total Liabilities and Fund Balances
  (Total Assets = Total liabilities + Fund Balances)
  
  
• If your balance sheet shows current net income at the bottom under fund balance, check to see if this matches the net income on the Income Statement. (TIP: it should)
  
  
• There really shouldn’t be any negative numbers, or very few, on the balance sheet.  If you see something that is negative, you might want to ask about it.
  
  

Income Statement

An Income Statement (IS) tells you revenue and expenses for a period of time. We normally see a 5 column income statement. It will show month to date actual vs. budget, year to date actual vs. budget, and annual budget.

Here are a few quick tips for reviewing the Income Statement:

• If your financials are being kept on an accrual basis, then the assessment revenue should be 1/12 of the total billings for the year.  If cash basis, then revenue will reflect what has been collected for the month.
  
  
• Scan the entire report comparing budget to actual numbers and look for any items that appear over budget.  Keep in mind you might be overbudget in the monthly column, but the year to date or annual budget could show underbudget.  This usually happens when you have a large expense in one month, but overall you anticipated the expense and budgeted accordingly.
  
  
• Familiarize yourself with the normal monthly expenses of the HOA.  Then you can quickly scan the month to date actual column for any odd or unusual items.

Bank Reconciliations & Statements, Check Registers, Delinquent Assessments Receivable Report, & Accounts Payable Report

These reports/printouts/copies are fairly self explanatory. They are the support for the numbers on the Balance Sheet and Income Statement.

• Most important here is that the reconciled cash balances on the reconciliations, and the total on the Delinquent Assessments and Accounts Payable reports, should match what is on the Balance Sheet.
  (TIP:  Supporting Documentation should support)

General Ledger

The General Ledger (GL) is a detailed report of all accounts on your Balance Sheet and Income Statement.
It is your “go to” report for seeing what happened in an account for the month.

• For example, the operating checking account should show deposits, checks, and any journal entries. Revenue accounts should show deposits.  Expense accounts should show checks or vendor bills (depending on whether you are cash or accrual based).
  
  
• For each transaction in any account, it should list the date, dollar amount, and memo; check # and vendor if a check; or homeowner if a deposit.  Regarding deposits, sometimes they are batched, so you may not see the detail that makes up a deposit, just the total deposit for that particular day.