Glossary of HOA Accounting Terms

Maintaining the finances for even a small community association is not always easy. Frankly, a lot of work goes into collecting dues, paying invoices, and keeping a budget, among other tasks.

Accounting specialists often use jargon that, for many people, might as well be in another language. To eliminate confusion, we have explained some of the most commonly-used terms in community association accounting settings.

Accounting Equation
Assets = Liabilities + Equity
The accounting equation is the cornerstone of the standard system of finance. The equation explains the principle of equity, which is the difference between an association’s assets and its liabilities:

Accounts Payable
Put simply, AP is money owed by an association. The money could be owed to a vendor. This appears as a liability on the community’s balance sheet. Accounts Payable is a form of credit, in which a vendor allows the association to pay for goods or services after they have been delivered.

Accounts Receivable
Any money owed to an association. Usually, this money is collected in the form of homeowners assessments, commonly called dues. The amount of money owed to the association appears on the balance sheet as an asset.

Balance Sheet
The balance sheet is a summary of an association’s financial balances and offers a glimpse of the association’s financial health. This is composed of:

• Assets – Economic resources, both tangible and intangible
• Liabilities – Economic debts
• Equity – The difference between assets and liabilities

Bank Reconciliation
The process of determining the difference between the amount of money in an association’s financial records and the amount in the association’s bank statement. For example, if a vendor check has not been cashed, the bank statement would differ from the association’s records. A bank reconciliation would determine that the un-cashed check is the cause of the discrepancy.

Reserve Account
Funds set aside for the future replacement or repair of common property. This might include a roof replacement in a condominium building or the re-paving of a road in a homeowners association.