Which Basis of Accounting Should Your HOA Use?

When preparing your financial statements for the HOA, it’s important to carefully consider the basis of accounting that your organization utilizes. The basis of accounting chosen can have a significant impact on the HOA’s financials moving forward. To help you to understand the models of accounting available, our Asyst HOA accounting software experts highlight three options within this latest post.

1. Accrual Basis of Accounting

The accrual basis of accounting involves the reporting of all financial activities on the homeowner’s association’s financial statements. This means that you can achieve a complete picture of the organization’s financial health as all elements will be taken into consideration and included within the statement. Under this basis, revenue is record when earned and expenses are recorded when incurred, regardless of when the money was exchanged within the accounts. In addition, the costs of various services are recorded as expenses at the time the services are provided.

2. Cash Basis of Accounting

The cash basis of accounting records all income and expenses at the time the cash is exchanged. All revenues are reported when received, and not at the time they were earned. All expenses are reported when paid and not when they were incurred. At this time, only the cash balance within the HOA funds is decreased. Since no amounts are reported on the balance sheet, it can be difficult to reconcile accounts with assessments receivable, prepaid assessments, and accounts payable. The amount listed may not be comparable to the budget.

3. Modified Accrual Basis of Accounting

This basis acts as a combination of both the accrual basis of accounting and the cash basis of accounting. While the basis does not conform to GAAP, it is considered to be an acceptable form of accounting for interim purposes for the homeowner’s association. This means that the modified accrual basis of accounting is often used when associations are undergoing structural change or switching from one basis to another. Revenues are handled in the same way as in the accrual basis of accounting, in that revenues are reported when earned, while expenditures are handled in the same way as in the cash basis for reporting, as expenditures are reported when paid.

Asyst Can Help

Our team at Asyst Group is here to guide you in harnessing the value of the latest accounting software for your HOA. To learn more on your HOA accounting options, contact our software team directly!