Condo Board Accrual Accounting
When it comes time to track the financial statements of your condo board, it will have to be decided what method is going to be used. For many HOA and condo management teams, accrual accounting is the best option.
When it comes time for a condo board to make the decision, having the right information to make an informed vote is essential. In this article, we are going to cover what accrual accounting is and how it can benefit your HOA management and financial reporting.
Although it can be easy to ignore this aspect of HOA condo board management, a team that starts or updates their methods before things get out of control will have much less of a headache down the road. Being ahead of the game with condo board management finances will be one of the best things your team can do.
Why is Accrual Accounting Better?
There are two major methods of financial reporting available to condo boards: accrual accounting and cash accounting. Although it is a legitimate method, it has its downsides. Here is a brief overview of why accrual accounting is a better and more preferred method.
The Downside to Cash Accounting
Although for small or cash-based businesses this can be not only a suitable method but ideal, using it for a homeowners association is not the best method. This method focuses on only recording expenses when either a payment is made from the HOA condo board or is received from revenue.
This method is much more difficult when unexpected expenses come up. It can quickly become a big headache to try and remember and track down where some money has gone that ‘wasn’t documented.
This method can be very deceiving. It is easy to believe there is no issue and things are in a good place financially, and only one or two unexpected expenses could quickly throw things off.
The Upside of Accrual Accounting
With the accrual accounting method, any revenue or expenses either paid or earned is immediately recorded. As an example, if you needed a repair done for the space you have your meetings, this would be directly recorded as an expense.
Although it may seem simple, and it is, having this practice as an HOA or condo board management team can set you above other teams for being up to date and have financial records in perfect order.
By having a more accurate and up to date status of the finances of an HOA helps with planning, records required for running the HOA, and ensuring the least amount of stress by eliminating the chance of coming up short.
Accrual Accounting is My HOA Management Teams Choice, but Now What?
Once you’ve decided that your HOA will use accrual accounting the best thing to do is set up a system that is seamless and keeps everything in order. For many associations, HOA software like Condo Manager is a key part of the equation. Contact us online or by phone at (800) 626-1267 for a free demo. We can help guide you in making the best decisions for your team’s processes and accrual accounting methods.