Any discussion on accounting for condo associations and HOAs often starts with the end result - monthly financial reports. There's all kinds of information for board members to help them understand the reports, but how can you head off questions at the pass by making sure the financials are correct before you give them to the Board?
Never fear! I'm here to give you all that month-end procedural goodness you need for pristine hoa financials, plus a handy-dandy checklist to help make sure you've got all your bases covered at the end of each month.
Obviously, if your accounting cycle uses financial periods other than months (quarterly, biannually) these instructions would apply for that period.
Step 1: Reconcile your bank accounts
Before you begin generating any reports, you need to match up your community association's bank statements to your accounting ledgers. This should include incoming receivables and outgoing payables. Confirm that you have a match in your accounting system for each item on the bank's statement, and check for any oddities, such as bank errors (incorrectly reported amounts or duplicate checks put through) as well as unexpected charges (such as NSF or overdraft fees).
Note any discrepancies and attach a printout of your reconciliation report to your bank statement.
Step 2: List delinquent owners and outstanding payables
Once you've determined what's come in for the month, you need to know what's missing. This should come in the form of an owner delinquency report that will list homeowners who have not paid their dues for the month. This should also accommodate any owners who have prepaid their dues in advance. Additionally, you will need a list of outstanding payables - checks that have been written against the account but have not yet cleared.
Step 3: Generate Balance Sheet and P&L
Now you're ready to bring out the big guns. Your balance sheet will list out the community's assets and liabilities. Compare your owner balances and receipts against the bottom line of the receivable section on your balance sheet, if you are using the accrual accounting method.
You should also generate a Profit and Loss Statement (also called an Income/Expense Statement). The bottom line figure, current net/year and income/loss on this report should match your Balance Sheet. Otherwise, your Balance Sheet and Income/Expense Statement will not be in balance. It doesn't hurt to have your budget on hand while you are checking your numbers, so you can compare your predictions to how the community actually did for the month.
Here's what else you should be checking for:
Verify that the Balance Sheet is in Balance - insure that your total assets section is equal to the total liabilities & equity section
Review any negative balances on Balance Sheet and Income Statement
Ensure that the Year-to-Date Current Year Net Income/Loss on the Income Statement match the Balance Sheet’s Current Year Net Income/Loss
Ensure that the Balance Sheet Reserve Accounts listed under Liabilities & Equity Section match the Reserve Accounts listed under the Asset Section
Review any big variances between budgeted and actual figures on the Income Statement
Assuming everything matches up as expected, you're ready to give your monthly financials to the board!
We've prepared a handy checklist you can go through at the end of each month to go through each step and make sure all your i's are dotted and your t's are crossed. Get it here: