Wednesday July 09, 2025
Strong HOA accounting is the foundation of responsible financial management. Boards depend on accurate numbers to make decisions about assessments, reserves, contracts, and the overall financial direction of the community. Homeowners want transparency, and they expect to see where their dues are going.
When the financials are clear and up to date, the board is better equipped to plan and avoid surprises. Without that structure in place, your association risks budget gaps, compliance issues, or resident frustration. Even if your HOA works with a professional accountant or HOA management company, board members still need a working understanding of key financial concepts.This article is not intended to and does not constitute legal advice or create an attorney-client relationship. Board members should consult their association’s attorney to discuss the legal implications of their decisions or actions prior to proceeding.
Types of HOA accounting
There are three common methods used in HOA accounting: cash basis, accrual basis, and modified accrual basis. Each has advantages and disadvantages, and your association’s governing documents or state/provincial laws may impact which is appropriate.Cash basis
Cash basis accounting tracks money when it actually moves — income when it's received, and expenses when they're paid. It can be simpler and easier to follow than other methods, which is why some smaller or self-managed associations start here.- Pros: It's straightforward, requires fewer entries, and can make bank reconciliation more manageable.
- Cons: Since unpaid invoices or future income won’t appear until the cash hits the account, it doesn’t paint the full picture. And since cash basis accounting is not compliant with Generally Accepted Accounting Principles (GAAP), it may not meet the standards expected by lenders, auditors, or regulators.
Accrual basis
Accrual basis accounting records income when it’s earned and expenses when they’re incurred, even if no money has changed hands yet. This method can give your board a clearer view of what the association truly owes and is owed.- Pros: It’s GAAP-compliant and can offer a more complete picture of your financial obligations.
- Cons: It’s more complex and requires consistent tracking and reconciliation, which can demand more time or professional support.
Modified accrual basis
Modified accrual basis accounting is a hybrid method used by some HOAs that blends aspects of accrual basis accounting and cash basis accounting. As with accrual basis accounting, the association records income when it’s earned — for example, when HOA fees are billed to homeowners, regardless of when the payments are actually received. However, expenses are only recorded when the HOA actually pays the bill, like with cash basis accounting. This means the income side reflects what the association is owed, while the expense side reflects what has actually been paid out.- Pros: Potentially easier to manage than full accrual and may be more accurate than cash basis.
- Cons: Not GAAP-compliant and can create blind spots when it comes to long-term planning.
HOA financial statements
Financial statements are a core part of HOA accounting and should be reviewed consistently, not just filed away. These reports give your board and homeowners a clear, up-to-date picture of where the association stands financially.The most common financial statements include:
- Balance sheet: A snapshot of what the association owns and owes, including assets, liabilities, and fund balances.
- Income statement (profit and loss): Tracks revenue and expenses over time, helping boards understand if they’re operating within their budget.
- Cash flow statement: Follows money in and out of accounts to highlight liquidity and help avoid cash shortfalls.
- General ledger: The details behind your numbers, a comprehensive record of every transaction.
Bank reconciliation in HOA accounting
Bank reconciliation is the process of comparing your association’s internal records to your actual bank statements to confirm that every transaction lines up. It's a key part of HOA accounting and should be done at least monthly.Regular reconciliation can help your board catch issues early, like uncashed checks, duplicate payments, or auto-drafts that didn’t get logged. While reconciliations are often handled by your management company or bookkeeper, the board still plays a role. At least one person who doesn’t handle payments should be reviewing the statements and reconciliation reports each month. Some associations go a step further and require board approval of monthly reconciliations as part of their internal controls.
Internal controls and audits
Strong internal controls can help protect HOA funds from mismanagement or fraud. These may include things like:- Requiring two signatures for checks over a certain amount
- Separating duties between those who approve, issue, and reconcile payments
- Regularly reviewing bank statements and reconciling accounts
- Securing board approval for large expenses
How a management company can help with HOA accounting
HOA accounting can be complex, especially for larger communities or those with extensive amenities and relationships with HOA vendors. At FirstService Residential, our dedicated financial team delivers full-service HOA accounting tailored to your association. We handle everything from balance sheets and bank reconciliations to assessment collections and year-end reporting, with built-in checks and controls every step of the way. Board members can easily access financials online, track progress, and stay informed without getting bogged down in spreadsheets.We combine deep industry experience with the transparency of a publicly traded company, giving your community access to financial expertise, reliable systems, and detailed reporting. Contact us today to learn how FirstService Residential can support your community’s financial health.