hoa chart of accounts

An HOA chart of accounts offers structure to an association’s financial ledgers and reports. It makes it easier for board members to read and interpret the financial statements, enabling them to monitor cash flow. Associations without a clear and effective chart of accounts may have trouble organizing and understanding their records.

 

What is an HOA Chart of Accounts?

A homeowners association chart of accounts is a list of all the financial accounts an HOA or condominium uses to record its transactions.

This chart is essentially an inventory of all financial categories. Each account is named and assigned an account number. For example, an association may maintain separate accounts to classify regular dues, special assessments, late fees, and fines, even though all of them are forms of income.

Every time the association earns revenue or incurs expenses, it records the transaction under the correct account. If an HOA spends money on landscaping, it should file it under the appropriate account name and number, not under insurance or utilities.

 

Why Does an HOA Need a Chart of Accounts?

An HOA chart of accounts serves as the foundation of all the financial ledgers and reports of an association.

Associations handle many different types of income and expenses. A chart of accounts gives the board a clear system for recording transactions. It is essential to accurate HOA bookkeeping.

With a good chart of accounts, the HOA board can:

  • Track revenue clearly
  • Separate operating expenses and reserve expenses
  • Compare actual income and expenses against the budget
  • Identify unexpected or unusual expenses
  • Monitor expenditures
  • Prepare financial statements, including the HOA general ledger
  • Make smarter financial decisions
  • Maintain consistent financial records

 

What are the Types of Accounts?

A chart of accounts consists of five main HOA account categories: assets, liabilities, income, expenses, and equity or fund balances. Let’s break these down below.

 

1. Assets

Assets refer to the things that an HOA or condominium owns or has control over. They have financial value. Examples include an operating bank account, a reserve bank account, investments, accounts receivable, and prepaid insurance.

 

2. Liabilities

Liabilities are the amounts that the association owes. Examples include accounts payable, accrued expenses, deferred revenue, and loans payable.

 

3. Income

Income refers to the money that the association earns or collects. Examples include regular dues, special assessments, late fees, interest income, and fines.

 

4. Expenseschart of accounts for HOA

Expenses are the costs that the association incurs. Examples include landscaping, maintenance, insurance, utilities, management fees, and administrative expenses.

 

5. Equity or Fund Balances

This category tracks the association’s financial position. It essentially represents the value of the association, calculated as “total assets minus total liabilities.”

 

How to Set Up a Chart of Accounts for HOA

To set up an HOA chart of accounts, the board must review the HOA’s financial activities, create the main account categories, break down income and expenses into subcategories, separate operating and reserve activities, and align the chart with the budget. Let’s discuss each step further.

 

1. Review the HOA’s Financial Activities

First, the HOA board must examine how the association earns and spends money. This involves reviewing the current budget, bank accounts, financial statements, invoices, contracts, and recurring expenses. From there, the board should make a list of the association’s regular sources of income and expenses.

 

2. Create the Main Account Categories

Next, board members must create the five major categories of the HOA chart of accounts. These are the assets, liabilities, income, expenses, and equity or fund balances.

Typically, the numbering system follows the format below:

  • 1000 series: Assets
  • 2000 series: Liabilities
  • 3000 series: Equity or fund balances
  • 4000 series: Income
  • 5000 series: Expenses

 

4. Break Income and Expenses Into Subcategories

Income and expenses must then be broken down into meaningful subcategories. The board can’t just use “Revenue” to track all money received. Separate the subcategories into regular dues, special assessments, late fees, and interest, among other items. This will make it easier to distinguish where money is coming from.

Similarly, expenses should follow the same principle. Board members must separate costs into useful subcategories. Instead of classifying all maintenance-related expenses under “Maintenance,” itemize them further into categories such as landscaping, electrical, plumbing, pool maintenance, pest control, and the like. Again, this helps keep track of where the money is going.

 

4. Separate Operating and Reserve Activity

Operating funds and expenses must always be kept separate from reserve activity. The chart of accounts should clearly distinguish between the two types. This way, board members don’t mistakenly allocate or expend reserve funds for operating expenses and vice versa.

 

5. Match the Chart to the Budget

The chart of accounts and the annual budget should work together. If the budget has a landscaping line item, the financial reports should make it easy to see the actual landscaping expenses. Combining several expenses into a single category will make it difficult to make accurate comparisons.

 

How to Fix a Confusing HOA Chart of Accounts

Board members can fix their chart of accounts by combining duplicate accounts, renaming vague accounts, standardizing HOA account codes, removing obsolete accounts, and considering historical reporting.

An HOA chart of accounts is considered confusing if the board has trouble answering basic questions from its financial reports. If the board can’t trace expenses or income to a single source, the chart is ineffective.

Here are some tips for fixing the chart of accounts and ensuring accurate HOA fund accounting.

 

1. Combine Duplicate Accounts

If two or more accounts track essentially the same thing, then they are redundant. Common examples are “Landscaping” and “Lawn Care.”

 

2. Rename Vague Accounts

Account names should immediately indicate to the board which revenue or expense is being recorded. Instead of using “Maintenance” as a catch-all term, break it down into more specific expenses, such as “Plumbing” and “Electrical.”

“Miscellaneous” is another commonly misused account name. While this category can cover some occasional items, it should not be a substitute for expenses that could have their own categories.

 

3. Standardize HOA Account Codes

It is important to understand what belongs in each account and code. For example, the HOA can establish a consistent rule that routine lawn care falls under “Landscaping,” while repairs to the irrigation system fall under “Irrigation Repairs.”

 

4. Remove Obsolete Accountshomeowners association chart of accounts

Some accounts remain in circulation even when they are no longer in use. The best way to declutter the chart of accounts is to remove these older, inactive accounts.

 

5. Considering Historical Reporting

The chart of accounts can change over time. While this is not inherently a bad thing, it can cause confusion. Board members may have trouble deciphering certain accounts due to past renaming or restructuring. To avoid misinterpretation, it is a good idea to note these changes for future reference.

 

Sample HOA Chart of Accounts

Specific contents can vary depending on the association’s size, financial transactions, and accounting method. That said, here is an HOA chart of accounts template to work on as a starting point.

Download Your HOA Chart of Accounts Template Here

Account No. Account Type
1010 Operating Checking Asset
1020 Reserve Checking Asset
1030 Investments Asset
1100 Assessments Receivable Asset
2010 Accounts Payable Liability
2020 Accrued Expenses Liability
3010 Operating Fund Balance Equity/Fund Balance
3020 Reserve Fund Balance Equity/Fund Balance
4010 Regular Assessments Income
4020 Special Assessments Income
4030 Late Fees Income
4040 Interest Income Income
4090 Other Income Income
5010 Management Fees Expense
5020 Landscaping Expense
5030 Utilities Expense
5040 Insurance Expense
5050 General Repairs and Maintenance Expense
5060 Pool Maintenance Expense
5070 Janitorial Expense
5080 Legal Fees Expense
5090 Accounting Fees Expense
5100 Administrative Expenses Expense
5110 Pest Control Expense
5120 Plumbing and Sewer Expense
5130 Electrical Expense
5190 Other Operating Expenses Expense

 

The Best Way Forward

The HOA chart of accounts serves a critical purpose in monitoring and reporting financial activities. Self-managed boards can benefit from professional assistance from an HOA management company or Certified Public Accountant (CPA) to ensure an accurate and structured system.

Clark Simson Miller offers HOA financial management services to community associations. Call us today at 865.315.7505 or reach out to us online to request a proposal!

 

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