The HOA income statement is a part of every association’s range of financial reports. Therefore, it is important to know what this statement does and what you can find on it.
What Is an HOA Income Statement?
An HOA income statement is a financial report that presents the association’s revenues and expenses for a specific period of time. Other terms used to describe this report include a profit and loss statement, a statement of financial results, or a statement of earnings.
This report details the association’s revenues in terms of source and amount. It also breaks down all of the association’s expenditures. The report then calculates the HOA’s net income (or loss) by deducting the total expenses from the total revenues.
Income statements are very flexible and can be prepared at any point in time. Associations, though, usually generate their income statements every month, quarter, and year.
What Is the Purpose of an HOA Income Statement?
Homeowners associations function in much the same ways as a business. And just like a business, HOAs need financial statements to guide their financial decisions.
In fact, for many associations, it is mandatory to prepare financial reports on a regular basis as dictated by their governing documents or state statutes. For instance, Nevada associations are bound by NRS 116.31038 to review their finances and prepare a year-to-date financial statement.
Aside from being a requirement, though, the income statement helps associations in more ways than one. It is more comprehensive than a balance sheet in that it depicts your association’s revenues and expenses for a set period. A balance sheet, on the other hand, only shows you a general picture of your financial health.
Because the income statement is more detailed, it gives you a better view of your association’s finances for a given period of time. It shows you whether or not you are hemorrhaging money. If you end up with a net loss, that means you are spending way more money than you are earning. On the flip side, ending up with a positive net amount means you are heading in a good direction, financially speaking.
Once you have this information, you can then use it to inform your future decisions. Generally, a net loss signals you to cut back on your expenses. But, the problem can also stem from your income sources. In that case, examine your revenue stream to determine where your earnings are getting clogged. Perhaps some owners have stopped paying their dues, which would typically call for more stringent collection methods.
Components of an HOA Income Statement
For homeowners associations, an income statement consists of four general sections — gross profit, operational expenses, gains and losses, and net profit or loss.
This depicts your association’s earnings before the deduction of expenses. It includes homeowner dues, fees, assessments, and fines. If you are preparing a monthly financial statement, then this should show the total revenue (before expenses) for the month covered.
The operational expenses section includes all the recurring costs incurred for the period covered. Some examples are landscaping fees, maintenance costs, management fees, insurance premiums, and the like. If your association pays for it on a regular basis, this is where it should go.
Gains and Losses
Not all revenues and expenses are recurring. One-time earnings or expenses fall under the gains and losses category. For example, if your association replaced street lighting or had the playground repainted, you would include those expenses here.
Net Profit or Loss
The final part of the report is your net profit or loss. This is the resulting amount after you deduct your total expenses from your total revenue. A positive net amount means your association did financially well during the period covered. On the other hand, a negative net amount should trigger a re-evaluation of your finances. Is this a one-time fluke or is there something more to the net loss you experienced?
The Difficulties of Preparing an HOA Income Statement
From a glance, it might seem easy to generate an income statement. All you have to do is plug in the numbers and push some buttons on a calculator, right?
Although the income statement is the easiest to prepare among all the financial reports, many people still trip up and make mistakes. And, as you may know, even the slightest of errors can turn the entire report askew. Mistakes result in an inaccurate report, which ultimately leads to uninformed decisions.
For example, if you made a mistake and forgot to include certain expenses (resulting in a high net profit), you might think your association made more money than it actually did. Come next month, you might end up overspending because of this miscalculation. Mistakes are dangerous and can ruin your association’s financial standing.
Preparing an income statement demands attention to detail. You must list down all of the revenues and expenses you incurred so that you don’t leave anything out. Make sure to itemize each one, too. Don’t just group all the expenses together under a single category.
This also means having to use other reports and records as references. Because everything is connected, you must take the time to record all financial transactions no matter the size. If you neglect or choose to report even just one transaction, it could throw off your entire budget.
The Role of Management Software
While many associations hire an accountant or a management company to help prepare their financial reports, you can achieve equally great results with management software.
HOA management software allows you to automate a lot of transactions and financial records. It removes the need to write in every transaction multiple times in separate books. Instead, you only need to input it once and let the program do the rest.
The help of management software also allows you to generate financial reports, including an HOA income statement, with just the press of a button. You can generate these statements any time you wish, which is not only convenient but also lets you analyze the association’s financial direction without having to prepare an entire report from scratch.
Better Reports Lead to Smarter Decisions
The HOA income statement shows you the association’s net income or loss with great detail. Reviewing it allows you to identify any problem areas and jump to resolve them. Having it in your arsenal means you are equipped to make more informed financial decisions. Unfortunately, it is way too easy to make mistakes in the process of preparing it.
If you need an HOA management software for your association or management company, Condo Manager is your best choice. Call us today at 800-626-1267 or reach out to us online for a free demo.
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