Homeowners association boards comprise elected volunteers. Board members have various roles in the running of the community. However, some HOA board members might not have adequate expertise or experience to interpret or analyze complex HOA financial statements. Understanding the basics can help an HOA keep track of the association’s fiscal activities and ensure accountability. Whether you are a seasoned or a rookie member, this guide explains how to read HOA financial statements.
General Ledger
A general ledger records the daily financial activities of an HOA. It lays the foundation for sound financial reporting, allowing members to track every dime spent or received. When analyzing a general ledger, check the income and expenses for consistency. Unusual entries might indicate misappropriation of funds.
Balance Sheet
A balance sheet is another vital HOA financial report. It provides a preview of your HOA’s fiscal health by focusing on the association’s assets, liabilities, and capital reserve funds (equity). This financial statement is critical as it provides information on whether the HOA can settle bills and other expenses.
When learning how to read HOA financial statements like a balance sheet, start with the key entries. For instance, cash checking is the operating line that shows how much you can spend, while cash savings reserve is the amount of savings in your association’s account.
Income Statement
An income statement, also known as a profit-loss statement, outlines the revenues and expenses of the association over a given financial period. While HOAs are nonprofit entities, they can generate revenues in different ways to sustain the development goals of the community. An income statement assesses the HOA’s profitability and identifies potential discrepancies.
When reading an income statement, look for inflated expenses to spot fraudulent activities. Check and understand the HOA’s sources of revenue, such as dues, special assessments, and capital contribution fees. Compare these figures with the expenses to avoid losses and ensure your HOA is fiscally sound.
Cash Flow Statement
A cash flow statement monitors the inflow and outflow of funds from the HOA’s accounts. It allows board members and homeowners to understand how the HOA is handling the community’s resources. The statement comes in three parts, including the operating, investing, and financing activities. Operating activities outline cash sourced from members, while investing activities highlight the HOA’s investments, such as assets and equipment. Financing activities outline funds sourced from financing institutions.
Need Further Help Reading HOA Financial Statements?
Knowing how to analyze HOA financial statements can help ensure transparency, accountability, and compliance. It can also help board members in making informed decisions. Abel Accountants can teach new board members the steps to reading HOA financial reports. We also offer expert HOA accounting services. Contact us today to book an appointment.
