How Do I Make A Balance Sheet for My HOA?
Homeowners’ Associations take in quite a bit of money through fees and contributions. And to maintain a sense of transparency and fairness, all that money should be tracked in a way that everyone in the community can understand.
Fortunately, balance sheets for HOAs can help keep tabs on the finances by providing a clear snapshot of what’s coming in, what’s going out, and where it’s all ending up.
When an HOA creates a consistent and clear balance sheet, they maintain the transparency and fairness that homeowners expect from their HOA. These documents also provide a detailed overview of the HOA’s financial status, so board members can decide where to allocate resources.
In this article, we’ll dive into balance sheets for HOAs and how they work. We’ll look at what balance sheet information includes, how to create balance sheets for your HOA, best practices for balance sheets, and tips on analyzing balance sheet information.
What is a Balance Sheet?
Have you ever thought about having bookkeeping for a small HOA? Then your going to have to understand about balance sheets. A balance sheet is an overview of an organization’s financial health. It provides details about the company’s assets (what it owns), liabilities (what it owes), and equity (the balance of assets and liabilities). A balance sheet also gives insight into how the organization manages its resources.
Creating a balance sheet for an HOA is not tricky, but it does require some basic knowledge of accounting principles. In today’s digital age, plenty of free tools are available to help you create balance sheets. Having an accurate balance sheet can help your HOA track its financials to make informed decisions about where to allocate funds.
The 5 Primary Components of Financial Statements
Financial statements provide an overview of an organization’s balance sheet and other financial details. The balance sheet is just one part of the equation, but it’s essential for understanding the HOA’s financial health. The five primary components of a balance sheet include:
- Assets: Anything owned by the HOA, such as cash in bank accounts or investments, real estate owned by the HOA, and any properties that have been paid off.
- Liabilities: Debts owed to creditors, such as loans taken out by the HOA or unpaid taxes.
- Equity: The balance between assets and liabilities. This includes member equity (what members are entitled to receive when they leave the HOA) and retained earnings (profits set aside for future use).
- Revenue: Income from dues, fees, investments, and other sources.
- Expenses: All costs incurred by the HOA, such as salaries and insurance premiums.
Creating an Accurate Balance Sheet for HOAs
Once you’ve collected all of your documents, it’s time to bring everything together and create a balance sheet. This balance sheet will provide an overview of your HOA’s financials so you can make informed decisions about where to allocate resources.
Step 1: Calculate Assets
Start by calculating the total value of all the assets owned by your HOA. This includes cash, investments, real estate, and other properties that have been paid off. Make sure to include any future income from dues or fees that have already been collected but not yet received. This will give you a more accurate picture of your balance sheet.
Step 2: Add In Liabilities
Add in all of the liabilities that your HOA owes. This includes loans, taxes, and any other debts. Subtract this number from the total value of assets to get a balance of equity for your balance sheet.
Step 3: Calculate Revenue
Calculate all income sources for your HOA, such as dues, fees, investments, and other revenue streams. Add these numbers together to get your total revenue figure. Revenue is typically used to pay expenses and purchase assets.
Step 4: Calculate Expenses
Calculate your HOA’s expenses, including salaries, insurance premiums, supplies, and other costs. Subtract these numbers from your total revenue to get a balance sheet balance. This balance should match the balance you calculated in Step 2.
HOA Balance Sheet FAQ
Here are some of the most commonly asked questions about balance sheets for HOAs.
How to make a balance sheet from an income statement?
If your HOA has an income statement, you can use that to create a balance sheet. Start by adding up the total revenues, then subtracting all expenses. The balance remaining should match the balance on your balance sheet.
How to request HOA financial statements?
Board members and residents may request financial statements from the HOA by sending a written request. Most HOAs will provide balance sheets annually, but information may be available more often upon request.
Should balance sheets be audited?
Yes, balance sheets should be audited annually to ensure accuracy and compliance with any relevant laws or regulations. An auditor can review the balance sheet and provide insight into how it is managed and whether any discrepancies need to be addressed.
What is a healthy balance for an HOA?
A healthy balance sheet balance should be positive, with liabilities lower than assets and equity. This balance should be maintained to ensure the HOA’s financial health. Creating an accurate and up-to-date balance sheet is the best way to ensure this balance.
Start Creating Better HOA Balance Sheets
Creating and using balance sheets for your HOA can help you make informed decisions about financials, manage expenses, maintain a healthy balance sheet balance, and comply with any relevant laws or regulations.
And when residents feel that their HOA is being run properly and finances are in order, they’re more likely to pay their dues and fees on time. Ultimately, balance sheets are a vital part of understanding an HOA’s financials and should be regularly maintained, audited, and updated.
One way to start creating your own HOA balance sheets is by checking out examples of HOA audited financial statements and taking advantage of free HOA balance sheet templates online. With the right balance sheet in place, you can ensure your HOA website runs smoothly and efficiently.