Financial reports are available to association members. A financial report includes information that association Board members use to plan the community’s annual budget and direct its financial operations. Examining the association’s financial reports shows how assessments are being used.
Understanding the Terminology
First, it’s important to become familiar with basic accounting terminology.
Assets are mainly the cash in the bank accounts, including the checking/operating account, reserve account, etc.
Liabilities include any funds that are due, like unpaid bills, prepaid assessments, and other expenses.
Equity is a term used to represent the value of a business. If a community association has more savings, cash, and funds that it may collect compared to money it has to pay, then it has a positive equity. On the other hand, if a community association owes more money than it has and can take in, then it has negative equity.
Understanding Reports
Second, it’s important to learn about the various reports that are in your association’s financial report.
The Balance Sheet: Where Are We?
The balance sheet is the report that displays the association’s financial condition. It includes the association’s assets and liabilities, and a comparison of the assets minus the liabilities is provided that displays the association’s net worth, which is sometimes referred to as equity.
Statement of Income and Expense: How Much Did We Spend?
This report contains the actual amount spent for the month, compared to the budgeted amount for that month. It also displays the difference between these two amounts.
Payable Report: What Is Unpaid?
The accounts payable report refers to unpaid expenses, and it informs the association of expenditure obligations incurred in the current month. The account delinquency report refers to the accounts receivable and provides the association with a list of members not current on their assessment obligations, late fees, deed restriction fees, and legal fees, etc.
General Ledger: What Transactions Took Place?
The general ledger contains the accounting record for each transaction in numerical order (chart of accounts) and occurrence (date order). This accounting tool gives your HOA and community manager detailed information about your association’s financial transactions.
Cash Disbursements Ledger: What Checks Were Written?
The cash disbursements ledger (or check register) lists the expenses that the Board has approved to pay. The register should contain information relating to who the check was written to, the check number and date written, the invoice number, a chart of the account number, description of expense, an accounts payable report, and an account delinquency report.
Tips
- If you’re ever confused, it’s always best to ask for clarification before making assumptions. Infinity Management employs knowledgeable managers and accounting professionals that can answer all of your financial questions.
- Start with the summary. Review the year’s financial highlights – what was earned, what was spent and what remains available in reserves. It is usually summarized in simple language in the first page or two of the report.
- Read essential financial data. Pay attention to the association’s cash position and reserve fund balances, which will be indicated separately from the operating funds.
- When looking at a Balance Sheet, first make sure that the assets are equal to the liabilities and equity. If they are, then the finances are balanced.
- Check to see that the business has positive equity or retained earnings. A board should not be spending more than it is receiving in income. If liabilities are greater than assets, the business should consider increasing the assessments or levying a special assessment. If you see negative equity on the Balance Sheet, discuss it with your property manager.
Financial reports can be confusing, especially if you don’t have accounting experience. Infinity Management is always available to explain and clarify any questions that homeowners may have about their associations financial report. Feel free to give us a call at 661-257-2452.