Self Managed HOA Accounting Fundamentals

If you already have experience accounting or bookkeeping, you may feel completely prepared to volunteer as your HOA’s treasurer. As you learn the role, however, you may find that not all accounting is created equal. The right HOA accounting software can help with the steep learning curve of managing your HOA’s finances.

Managing the finances of your HOA is probably one of the most important tasks an HOA performs. As treasurer, you can expect to not only keep the bookkeeping accurate and analyze financial records, but also have knowledge of your state’s laws surrounding HOA finances.

Since you’re providing this service for yourself and your neighbors, maintaining a professional and accurate financial record will help your community remain satisfied with the HOA. Serving as the treasurer is a weighty responsibility, but the right accounting software for homeowners associations lessens the load.

You will find as you learn the role that HOA accounting is different from other types of accounting. We’ve listed some helpful tips to keep in mind as you take over as treasurer.

Table of Contents

1. Establish Your HOA’s Basis of Accounting
2. Be Specific When Creating Your Chart of Accounts
3. Learn Your HOA’s Investment Policies
4. Get Familiar with your State’s HOA Laws
5. Get the Right Tools for the Job
6. Conducting Audits for Your HOA
7. Accounting Checks
8. Review Vendor Contracts

Establish your HOA’s Basis of Accounting

HOAs can use three different methods of accounting based on how your HOA’s income and expenses are recorded: Cash Basis, Accrual Basis, and Modified Accrual Basis.

Cash Basis

With the Cash Basis method of accounting, revenue is only reported when cash is received, and expenses are only recorded when cash is paid out. With this method, your records directly associate with spent and available cash, which is simple, yet not as accurate.

Accrual Basis

With the Accrual Basis method of accounting, your HOA will record revenue and expenses as you earn and spend, regardless of payment status. 

The Accrual Basis accounts for anticipated income and expenses, which allows you to budget more accurately. It is less simple than Cash Basis accounting while being more straightforward than the Modified Accrual Basis.

Because of this, the Accrual Basis is the most favored method for HOA accounting, as it provides an accurate snapshot of an HOA’s finances. In addition, it is the only method that adheres to GAAP (Generally Accepted Accounting Principles) standards.

While the Accrual Basis is the most recommended method, as you work through your bookkeeping with accounting software for homeowners association, you will find the method that works best for you and your organization.

Modified Accrual Basis

The Modified Accrual Basis uses elements of the Cash Basis method depending on the longevity of the assets (short term or long term). It can be complicated and difficult to discern how to report money going in and out from your HOA’s account.

Be Specific When Creating Your Chart of Accounts

The chart of accounts lists every incoming or outgoing transaction from your HOA’s account in order by date. It will be necessary to amend this list with concise detail.

Since the treasurer will not be the only person reviewing the chart of accounts, it is imperative it is accessible to any potential party, from other HOA volunteers to board members. More specific listings lead to less questions and confusion in the future.

This practice is responsible and better for the entire community, as it creates financial transparency and trust.   

Learn Your HOA’s Investment Policies

Hopefully your HOA’s forecasted budget will prove accurate enough to generate excess funds each year to save and invest.

Your HOA may have specific bylaws and covenants surrounding investment policies and procedures. In addition, certain states have legislation about HOA investment. Learning all of these specifics will be primarily the HOA treasurer’s duty.

If investing is allowed, it could be beneficial to the HOA to grow excess funds rather than simply depositing them into a savings account. Though with any type of investing, there is risk involved, and your community’s happiness is at stake. 

Get Familiar with your State’s HOA Laws

Researching the specificities and intricacies of your state will be part of your job as HOA treasurer.

Each state has different laws and some are more rigorous than others. For example, California requires a monthly reconciliation review of all finances while many other states do not require any financial reviews at all.

While you won’t need to know your HOA’s relevant legal responsibilities verbatim, a healthy familiarity with them will make managing your HOA’s finances a more pleasant experience.

Get the Right Tools for the Job

Good accounting requires comprehensive tools that will aid the process and not hinder it. Any software will require time and patience to learn and master, but only HOA accounting software will provide a holistic solution for your organization.

The ubiquitous Quickbooks may be the first software that comes to mind, but an HOA requires more nuance than it can accomodate. Since Quickbooks was not designed with HOAs in mind, you’ll have to adjust your processes to mimic the structure of a business with invoices and customers.

Financial reporting is an essential component to serving as HOA treasurer. Proper accounting software for homeowners associations should have readily available report templates specific to HOAs, communications, and a payment gateway to create a seamless experience for financial reviews. 

Conducting Audits for your HOA 

Even though a CPA unaffiliated with your HOA should perform your audit, it is important for the entire HOA (especially the treasurer) to be familiar with the requirements and intricacies of the process. 

Especially your first year on the job, performing an audit will help you learn how to keep your records, what financial aspects are working, and how to effectively self manage your HOA’s finances.

Audits can expose minor issues, like under- or over- budgeting, or major issues like embezzlement or compliance as well as insurance issues. It may be a law in your state or part of your HOA’s bylaws to perform an audit. Even if it isn’t, it is a good idea to do one for the financial health and longevity of your organization.

Even without major issues to expose, it is up to your organization to take a full step back and assess your finances.

To prepare for an HOA’s audit, all documents should be up to date and in order: financial statements, board reports, contracts, insurance and investments. Your HOA accounting software will be extremely helpful for the audit as it retains all of your HOA’s financial records.   

The cleaner the record keeping you maintain throughout the year, the easier it will be to prepare for your audit. 

Accounting Checks 

GAAP-required accounting checks will supplement the outcomes of an HOA’s audit and should be conducted on a regular basis. These checks include:

1.      Agreed-upon procedures engagement – your CPA reports upon specific procedures agreed on beforehand.

2.      Compilation – your CPA presents your HOA’s information as a financial statement.

3.      Review – your CPA establishes limited assurance that your HOA’s financials are up to minimum accounting standards.

Your HOA covenants may specify a particular type of accounting check. None of these accounting checks should in any way replace an audit, which is far more rigorous.

In conjunction with an audit, they supplement your HOA’s financial health or reveal specific information that is wanted. These accounting checks help with transparency for your HOA community, which will help foster trust and satisfaction.

Review Vendor Contracts

Vendor contracts should be reassessed regularly to ensure their prices are still in line with your HOA’s budget.

A yearly assessment of vendors will reveal if each contract is still providing a useful service for your community and at the right price. It may also be useful to contact each vendor and discuss any potential changes in prices or opportunities to add services.

Any accounting software for homeowners association should help with your annual budgeting and more. Thousands of HOAs rely on PayHOA as a comprehensive solution for their organization’s needs. With versatile features and a dedication to innovation, PayHOA can manage your finances to create a prosperous HOA. 

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PayHOA offers an HOA management software solution for HOAs of any size or managerial priorities. To find out if PayHOA fits all your HOA management needs, try our software free for 30 days.