Many homeowners associations focus on the operational side of community management. But, the financial aspect is just as important. And one of the ways to evaluate the financial health of the association is through HOA accounting reports.
What Are HOA Accounting Reports?
Simply put, HOA accounting reports are compilations of accounting and financial information for homeowners associations. This information is obtained from the accounting records that the HOA maintains, typically in the form of a general ledger.
Accounting reports differ from financial statements in that financial statements are more of a representation of a whole picture. In contrast, accounting reports focus on certain areas of the financials and summarize critical data, which the board then uses to make informed decisions for the community. They are great for looking at specific facets. Accounting reports are important because they provide an HOA with a way to measure different aspects of an association’s financials at a glance.
A majority of associations use a third-party professional to prepare accounting reports. This usually means delegating the task to an accountant or an HOA manager (or management company). Other associations, though, have the treasurer prepare these accounting reports. Normally, this happens when the treasurer is adept or has some background in accounting.
The Most Important HOA Accounting Reports
If financial statements include the Balance Sheet and Income Statement, what are the accounting reports of an HOA? Accounting reports include an Accounts Payable Report, an Accounts Receivable Report, an Account Delinquency Report, a Budget vs. Actual Report, and a Bank Reconciliation Report.
Accounts Payable Report
The Accounts Payable Report, also known as the Accounts Payable Aging Report, is a report that depicts the unpaid expenses of an association for a given time period. This report provides an accurate and complete view of the association’s financial obligations.
An Accounts Payable Report consists of four parts: the vendor, the amount owed, the debt duration, and past due payments.
- Vendor. This is the name of the vendor to whom the association owes money.
- Amount Owed. This is the sum of money that the association owes to the vendor.
- Debt Duration. This refers to how long the association has owed the money.
- Past Due Payments. This indicates whether any debts are already past due.
The Accounts Payable Aging Report also separates past due payments according to how long they have been due. For instance, if a debt has been due for 20 days, it will fall under the column labeled 1-30 days old. These past-due payments are typically separated in increments of 30 days, with succeeding columns labeled 31-60 days old, 61-90 days old, and so on.
An AP Report is imperative because it allows the board to keep track of all the association’s debts. This helps the board make any adjustments necessary to settle outstanding balances and maintain healthy relationships with vendors.
Accounts Receivable Report
The Accounts Receivable Report, also known as the Accounts Receivable Aging Report, depicts all the debts owed to the association. This report shows the amounts that the association expects to receive, which usually take the form of unpaid dues, assessments, late fees, fines, and rental income (for common areas).
Like the Accounts Payable Report, the Accounts Receivable Report consists of four parts:
- Name. This is the name of the party that owes money to the association.
- Amount Owed. This is the sum of money owed to the association.
- Debt Duration. This refers to how long the party has owed the money to the association.
- Past Due Payments. This indicates whether any debts are already past due.
The Accounts Receivable Aging Report also separates past due payments according to how long they have been due. In this way, it works similarly to the Accounts Payable Report, only this report applies to receivables instead of payables. This report also shows debts that are 1-30 days old, 31-60 days old, 61-90 days old, and so on.
It is paramount that an HOA board maintains an accurate AR Report. This way, the board knows when to expect an inflow of cash and how much to expect. Of course, this report doesn’t always guarantee payment. It merely allows the board to keep track of the association’s receivables in an organized and formal way. It also allows the board to send collection notices at the right times.
Account Delinquency Report
The Account Delinquency Report is a report that shows the delinquent accounts in the association. When a homeowner, for whatever reason, stops paying their dues, their account becomes delinquent. Their account will then be added to this report for the purposes of tracking, collection, and analysis.
Unlike the previous two reports, the Account Delinquency Report is something that’s more unique to homeowners associations. Thus, the format can vary from one HOA to another. Generally, though, this report consists of the following information:
- Delinquent owner’s information (account number and lot or unit number)
- Sum owed
- Duration of debt
- Aging information (1-30 days old, 31-60 days old, 61-90 days old, and so on)
Homeowner names are sometimes included in this report, though it’s best not to for privacy reasons. If names are included, the Account Delinquency Report should be reserved for the board’s review and use only. The board can simply prepare a separate report consisting of lot or parcel numbers instead of homeowner names, which it can then show to the membership.
An Account Delinquency Report is integral to the financial health of an association. It allows the board to evaluate the delinquency rate of the HOA and spot trends. Based on this, the board can even come up with a plan to reduce delinquencies.
Budget vs. Actual Report
The Budget vs. Actual Report depicts a comparison between the association’s budget and its actual expenditures. Every year, the board creates an annual budget consisting of the association’s anticipated costs. To ensure the HOA is on track, the Budget vs. Actual Report monitors the actual spending of the association per line item. The report can also be used as a guide when planning the following year’s budget.
In addition to budgeted and actual amounts, this report also shows the difference in a positive or negative amount. A positive amount means the association is still working within the budget, while a negative amount means the association has gone over budget.
Bank Reconciliation Report
The Bank Reconciliation Report reconciles the association’s bank account with its record of financial transactions. In other words, it compares the money in the HOA’s bank accounts with the money it should have based on financial records. This report contains information on the association’s deposits, withdrawals, and other cash transactions, as well as adjustments for outstanding checks and interests earned.
This report is significant because it provides the board with a tool to measure the accuracy of its financial records. It’s also an easy way to spot discrepancies, which may be the result of human error, gaps in accounting standards, or even fraud.
Seeking Professional Help
Considering the role HOA accounting reports play in ensuring the positive financial trajectory of an association, boards would be wise to hire a professional to prepare them. After all, not all communities are equipped to handle all the complexities of these reports and how to analyze them.
Clark Simson Miller provides professional accounting services to homeowners associations and condominiums. Call us today at 865.315.7505 or contact us online to request a free proposal.
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