SCS FINANCIALS

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Any accountant or statistician will let you know that proper  reporting—and understanding of said reporting—is absolutely necessary to  run a successful business; this remains true when running a homeowners  association as a board member. As such, you need to pay close attention  to your monthly financial reports, usually presented to you by your  HOA management company. If you are a self-managed association, the  treasurer of your HOA should be providing these reports, as well as  recording them on a financial software program such as QuickBooks.  Generally accepted accounting principles require certain financial  reports for your HOA on a monthly basis, such as: 

The balance sheet is the report that gives the association’s financial  condition. A comparison of the assets of the association minus the  liabilities gives the association the net worth. This is the report that  shows how much money is actually in the association’s bank account.  Unfortunately, board members often find balance sheets to be one of the  most confusing statements in your homeowners association’s financial  statements. The idea behind your HOA’s balance sheet is that it should  always balance, with no exceptions. Listed assets are things such as  cash, amounts owed, liabilities, remaining values on unused insurance,  etc. Insurance is listed here because it’s typically paid-for in  advance, and is then capitalized to the balance sheet. As you use your  insurance, the balance of this asset decreases until it is gone. So, if  your homeowners association purchases a one-year policy in January for  $1200, this $1200 will be recorded to the balance sheet in January as  the value of the policy. As each month passes, $100 of that value will  be expensed, and the value of the asset will then decrease by $100 as  it’s used up. The board should compare the amount in the association’s  operating fund with the actual bank statement. As for liabilities, these  refer to money that your HOA owes, such as an unpaid water bill, a loan  taken out for a project, or your HOA management company fee.  Liabilities can also refer to money that you have received, but that  you have not yet earned (e.g. prepaid assessments). For your homeowners  association, equity is typically going to consist of the balance of your  HOA’s reserve account. Your Board of Directors will also see retained earnings on  this portion of the balance sheet. Retained earnings are calculated  using your beginning retained earnings from last year, plus the net  income so far this year. They can be looked at as your HOA’s cumulative  retention of earnings since its inception.

The statement of income and expense is probably the  most important management tool available to an association and its  community manager. This report contains the actual amount spent for the  month, compared to the budgeted amount for that month. It also displays  the difference between these two amounts. Additionally, the year-to-date  numbers are also accounted for on this report. Overall, this report  gives a snapshot of where your HOA is money-wise, for the month and for  the year. Your HOA’s board members can use this report to determine if  there are any categories that need to be worked on or fixed, as well as  to plan for future expenses. 

The general ledger contains the accounting record for each transaction  in numerical order (chart of accounts) and occurrence (date order). This  accounting tool gives your HOA and community manager detailed  information tracking the financial transactions for the association. 

The cash disbursements ledger (or check register) informs your board  members of checks written. The register should contain information  relating to who the check was written to, the check number and date  written, the invoice number, a chart of the account number (budget code  number) and description of expense, an accounts payable report, and an  account delinquency report. 

Finally, the accounts payable report refers to unpaid expenses, and  informs the association of expenditure obligations incurred in the  current month, while the account delinquency report refers to the  accounts receivable and provides the association with a list of members  not current on their assessment obligations, late fees, deed restriction  fees, and legal fees, etc.