HOA General Ledger
The foundation of all HOA accounting is the general ledger. Much like your checkbook at home, the HOA general ledger keeps an ongoing record of all transactions made by the community association. All other financial statements such as the balance sheet, income statement, and statement of receivables are created based on the ledger.
Unlike all the other financial statements which are prepared on a monthly, quarterly, or annual basis, the general ledger should be continuously updated. Whenever a transaction is made or received, it needs to be accounted for. At any point in time, you should be able to look at the ledger and see how much money the association currently has in all accounts and where money has moved. If you need to go back and see how much the association spent on landscaping in August three years ago, you should be able to find it in the ledger records.
There are three basic approaches to manage HOA finances. There is no right method for every association. Each HOA is different and may find that one method of accounting works better for them than another.
- Accrual – The most popular and preferred method. In an accrual approach, revenues and expenses are recorded when they are incurred instead of when money changes hands. This means that communities using this approach will need to maintain two other ledgers for payables and receivables. For example, when invoices are sent to homeowners for dues, that money is marked down in the receivables ledger. As community members pay their dues, the money in the receivables leger is moved to the general ledger. The same process is used for expenses in a payables ledger. While this may take more effort than other accounting methods, it provides much more detail.
- Modified Accrual – A mixture of accrual and cash approaches. In modified accrual, revenues get recorded when they are earned while expenses get recorded as money changes hands. HOAs that use this approach will need a separate ledger for receivables but will document expenses as they are paid in the general ledger.
- Cash – Transactions are documented on one ledger as money exchanges hands. This is the simplest approach but provides the least amount of detail.
Once you find the approach that works best for your HOA, stick with it. Switching between different approaches can make reviewing financial information in the future confusing and may hinder your board of directors’ ability to make well-informed decisions.
What Should be Included
Depending on the system of accounting, your HOA may have several ledgers running at all times. But no matter the approach, ledgers should include all transactions made by the community association in and out. Each account owned by the HOA should also have its own ledger. Most associations have at least an operational account and a reserve account.
Regularly checking bank statements is a good way to double check the accuracy of the HOA general ledger. Sometimes transactions can accidentally go unreported or, in some cases, fraudulent activity may occur. Whenever you receive statements from the bank, make sure all transactions match up between them and the HOA general ledger.
Need Help Maintaining an HOA General Ledger
Finances can be confusing. It is always helpful to have a professional on your side to make sure everything is being done properly. If you are having trouble keeping up with all the financial documents necessary to properly manage an HOA, call the experts at CSM. We have years of experience working with homeowner’s associations in almost every state in the US. We offer a wide variety of financial management solutions to give you all the assistance you need while still maintaining your independence.