HOA Accounting 101
Every well-run HOA relies on accurate, consistent accounting. Whether you manage a small cluster of homes or a large community, one of the biggest early decisions your board will make is choosing the right accounting method: cash, accrual, or somewhere in between.
Let’s break down the differences and why they matter.
What Is HOA Accounting?
HOA accounting tracks all income and expenses. This includes:
- Collecting dues
- Paying vendors
- Managing reserves
- Preparing financial reports
- Budgeting for future repairs
While the job sounds straightforward, the method you use to record transactions can drastically change how your finances appear.
Cash Accounting: The Simpler Option
Cash accounting is the easiest to understand. You record revenue when it’s received and expenses when they’re paid.
For example:
- A homeowner pays dues in March → record in March.
- You pay the landscaper in April for March work → record in April.
Accrual Accounting: A More Accurate View
With accrual accounting, you record revenue when it’s earned and expenses when they’re incurred, regardless of when money changes hands.
Example:
- You bill dues in March → record in March
- Landscaping completed in March → expense recorded in March, even if paid in April
Modified Accrual: The Middle Ground
This hybrid method blends the two:
- Income is recorded when earned (like accrual)
- Expenses are recorded when paid (like cash)
It’s a popular option for small to mid-sized HOAs looking for improved accuracy without full accrual complexity.
What Do Most HOAs Use?
According to the Community Associations Institute (CAI):
- Many small HOAs (under 30 homes) use cash
- Most medium to large HOAs use accrual or modified accrual
If your HOA applies for loans, has significant reserves, or undergoes audits, accrual is often required.
Choosing the Right Fit for Your Community
Here’s a quick guide to help decide:
Steps to Get It Right
Not sure what method you’re currently using? Start by asking your treasurer or accounting provider. Then:
- Evaluate your community’s size and financial complexity
- Use accounting software that matches your method (e.g., QuickBooks, AppFolio, CINC)
- Learn how to read your reports, especially cash flow vs. net income
- Consult a CPA familiar with HOA financials
Final Thoughts: Clarity Comes from Consistency
No matter what method is used, consistency is key. Sticking with a reliable accounting approach builds trust, improves decision-making, and keeps your HOA financially sound.
If your current system feels confusing or outdated, it might be time to revisit your approach and get the clarity your community deserves.
Key Definitions that might help:
Reserve Fund: A savings account used for large, long-term repair and replacement projects (e.g., roof, paving). Tracked separately from the operating budget.
Delinquency Rate: The percentage of homeowners who are behind on paying dues. A high rate can hurt the HOA’s ability to get loans or maintain services.
CPA (Certified Public Accountant): A licensed financial professional who can prepare or audit the HOA’s financials. Often used for larger or regulated communities.
