Guide for board members
HOA Financial Statements: What the Board Should Read Each Month and the Red Flags in Each
HOA financial statements are the monthly reports that show a board what the association owns and owes, what came in and went out against the budget, and whether the bank agrees.
This page is for the board member who has to approve the statements. We pair each one with what to look for and the question to ask. The sample association, Demo Ridge HOA with 60 homes, is invented data, and its 5 statements agree with each other.
What are HOA financial statements?
HOA financial statements are monthly reports for the board. They show what the association owns and owes, what came in and went out against the budget, and whether the bank agrees.
The statements are the monthly output of HOA accounting explained for board members. Approving them is the board's job. Read them before you approve them.
Which financial statements should an HOA board get each month?
5: a balance sheet by fund, income and expense against budget, a reconciliation for each bank account, a list of owners behind on dues, and reserve activity.
| Statement | The question it answers |
|---|---|
| Balance sheet by fund | What does the association own and owe, and how much of it is reserves? |
| Income and expense against budget | Is the association on plan this month and this year? |
| Bank reconciliations | Does the cash in the books equal the cash at the bank? |
| Owners behind on dues | Who owes, how much, and for how long? |
| Reserve activity | What moved in and out of reserves this month? |
How do you read an HOA balance sheet?
Read it by fund. Check that operating cash and reserve cash match the bank statements, that dues owed match the owner list, and that the reserve fund balance moved by the month's transfer.
Demo Ridge HOA balance sheet, invented data
| Line | Operating fund | Reserve fund | Total |
|---|---|---|---|
| Cash in the bank | $39,300 | $172,010 | $211,310 |
| Dues owed by owners | $4,900 | $4,900 | |
| Fund balance | $44,200 | $172,010 | $216,210 |
- Operating cash, $39,300, and reserve cash, $172,010, match the 2 bank reconciliations.
- Dues owed, $4,900, match the list of owners behind.
- The reserve fund moved by the $4,200 transfer, plus $310 of interest, less the $18,500 roof repair.
Why the reserve column stands apart is in HOA reserve fund accounting.
How do you read an HOA income and expense statement?
Compare each line with the budget for the month and the year so far. Look for dues billed that equal homes times dues, and for any cost line well over plan.
Demo Ridge HOA income and expense, invented data
| Line | Budget | Actual | Difference |
|---|---|---|---|
| Dues billed, 60 homes at $350 | $21,000 | $21,000 | $0 |
| To reserves | -$4,200 | -$4,200 | $0 |
| Kept in operating | $16,800 | $16,800 | $0 |
| Landscaping | -$4,200 | -$4,200 | $0 |
| Insurance | -$3,100 | -$3,100 | $0 |
| Management | -$2,400 | -$2,400 | $0 |
| Utilities | -$3,100 | -$2,900 | $200 |
| Repairs | -$2,900 | -$2,300 | $600 |
| Office | -$1,100 | -$1,000 | $100 |
| Operating bills | -$16,800 | -$15,900 | $900 |
| Operating surplus for the month | $0 | $900 | $900 |
- Dues billed equal homes times dues: 60 at $350 is $21,000. If the line is lower, a home may not have been billed.
- The month is $900 under its operating budget. Utilities, repairs and office all came in under plan.
- No cost line is over plan this month. When one is, the question is what the bill was for and whether the board approved it.
What does the bank reconciliation tell an HOA board?
It proves the cash on the balance sheet is the cash in the bank. Each account should be reconciled to the statement date, with a short list of items not yet cleared.
Demo Ridge HOA bank reconciliations, summary, invented data
| Account | Balance on the bank statement | Payments not yet cleared | Balance in the books |
|---|---|---|---|
| Operating account | $40,300 | -$1,000 | $39,300 |
| Reserve account | $172,010 | $0 | $172,010 |
Someone other than the person who records the payments should look at each reconciliation. How each account is checked, and who should sign, is in HOA bank reconciliation.
What does an HOA's list of owners behind on dues show?
It lists each owner who owes, how much, and how long the balance has been open. The total should equal dues owed on the balance sheet.
Demo Ridge HOA, owners behind on dues, invented data
| Age of the balance | Amount |
|---|---|
| Under 30 days | $1,400 |
| 31 to 60 days | $1,050 |
| 61 to 90 days | $700 |
| Over 90 days | $1,750 |
| Owed by 4 owners | $4,900 |
The 4 owners owe 1, 2, 3 and 8 months. One owner owes $2,800 of the $4,900. The total equals dues owed on the balance sheet.
What to do with this list is in the HOA delinquency report. What owners may see of each other's balances is set by state law and the governing documents, a question for the association's attorney.
What does the HOA reserve activity report show?
It shows the reserve balance at the start of the month, the transfer in, interest, any spending, and the balance at the end.
Demo Ridge HOA reserve activity, invented data
| Line | Amount |
|---|---|
| Reserve balance at the start of the month | $186,000 |
| Transfer in from operating | +$4,200 |
| Interest earned | +$310 |
| Roof repair, paid to Example Roofing | -$18,500 |
| Reserve balance at the end of the month | $172,010 |
The ending balance is the reserve cash on the balance sheet and on the reserve bank reconciliation.
What are common red flags in HOA financial statements?
No reserve transfer, reserve cash sitting in the operating account, a missing bank reconciliation, dues owed growing every month, and cost lines far over budget with no explanation.
A red flag is a reason to ask, never proof that something is wrong. Here are 10, with the question for each.
| Statement | Red flag | The question to ask |
|---|---|---|
| Reserve activity | No reserve transfer this month | The budget sets a transfer every month. Why was it skipped, and when will it be made up? |
| Balance sheet | Reserve cash sitting in the operating account | When will the reserve money move to its own account? |
| Bank reconciliations | A reconciliation that is missing or old | Which accounts were reconciled this month, and to what date? |
| Bank reconciliations | Uncleared items older than 60 days | What are these items, and why have they not cleared? |
| Income and expense | A cost line far over budget with no note | What was the bill, and who approved it? |
| Owners behind on dues | Dues owed growing month after month | Which owners were contacted, and what is the next step under the governing documents? |
| Owners behind on dues | One owner making up most of the amount owed | How long has this balance been open, and what has been done? |
| Balance sheet | A balance that changes with no matching income or expense | What entry moved this balance? |
| All 5 | Statements that arrive late | What is holding up the close? |
| Bank reconciliations | The same person recording and approving payments | Who else looks at the payments and the reconciliation each month? |
When should an HOA board get its financial statements?
Before the board meeting, with time to read them, once the month is closed and every bank account is reconciled. The treasurer presents them and the board approves them.
A one-page summary of these statements for the meeting is the HOA treasurer report template. Who checks what, and when, is in HOA treasurer duties.
Multifamily Bookkeeping sends these 5 statements to the board every month. See our HOA bookkeeping service.