Thursday December 11, 2025
What are HOA financial statements?
HOA financial statements are official records that reflect a homeowners association’s (HOA) financial activity, performance, and position over a specific period. In California, the Civil Code requires associations to prepare and share financial statements so boards and homeowners understand how funds are collected and used.At their core, HOA financial statements include a balance sheet and income statement, along with supporting cash and reserve reports. These records give boards the tools to evaluate financial health and plan for ongoing needs such as maintenance or insurance.
The Davis-Stirling Act requires many HOA boards to review key financial information monthly and to obtain a professional CPA review of the association’s financial statements for any fiscal year in which its gross income exceeds $75,000. Property management companies often help prepare and distribute these reports on schedule, using standard accounting practices to keep records consistent.
This article is not intended to and does not constitute legal advice or create an attorney-client relationship. Board members should consult their association’s attorney to discuss the legal implications of their decisions or actions prior to proceeding.
Key types of HOA financial statements
Each HOA financial statement offers a different view of the association’s finances. Together, they provide a full picture of the community’s financial health.
- Balance sheet: The balance sheet provides a snapshot of the association’s position at a single point in time. It lists assets, liabilities, and fund balances. Common assets include cash, reserve funds, and prepaid insurance. Liabilities may include vendor invoices and prepaid assessments. The remaining balance shows the community’s net worth.
- Income statement: The income statement outlines income and expenses over a period, usually monthly or quarterly, and compares results against the budget. This helps boards see whether the HOA is collecting enough revenue through assessments to cover expenses. Regular reviews help identify early trends, like higher utility costs or maintenance overruns, so adjustments can be made promptly.
- Cash flow statement: The cash flow statement tracks how money moves through the association. It shows whether the HOA has enough liquidity to pay bills without relying on reserves or credit.
- General ledger: The general ledger is the complete record of all financial transactions. Managers and accountants use it to verify balances, reconcile statements, and prepare reports.
- Accounts payable and receivable: These reports show what the association owes vendors and what homeowners owe in assessments. They help boards monitor cash flow and collections.
- Delinquency report: This report lists overdue assessments or fines. Boards review it monthly to decide when to send notices or begin collection steps under state law.
- Reserve funds report: California law requires HOAs to regularly study and plan for reserve funding for long-term repairs and replacements, and to keep any collected reserve funds in designated reserve accounts. This report tracks the balance, contributions, and planned expenses. Boards use it alongside the reserve study to confirm that savings align with future needs.
Tips for strengthening HOA finances
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Keep an eye on capital.
Even the most detailed budget is subject to the vagaries of cash flow. Sometimes it’s good, sometimes it’s not. For those latter times, you may need to use the resources in your working capital fund. Build this part of your budget by collecting a contribution at closings and re-sales. Your working capital fund should be at least half a month’s expenditures.
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Keep reserve funds separate.
Reserve funds should always be held in separate accounts from operating funds. This separation protects long-term savings from being used for short-term expenses and helps boards stay compliant with California’s Civil Code requirements.
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Remember capital improvements.
There should be a separate part of your budget for capital improvements — those changes you make that actually enhance the value of your community, rather than merely maintaining the current state of operations. Start by commissioning a professional reserve study that evaluates your community’s major components and projected replacement timelines. A good HOA management services company can put you in touch with the right engineer for the job. And remember, lenders are more likely to issue mortgages for properties in communities with ongoing capital improvements.
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Craft your investment policy.
It’s your fiduciary responsibility to protect and prudently manage your community’s funds, but you should do so with minimum risk. Making an investment plan can help. You should put yours in writing, and be aware that it should account for insurance limitations such as FDIC. You’ll also want to be clear on when your funds can be withdrawn.
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Make these docs accessible.
Effective California community management requires access to four key reports: actual versus budgeted income and expenses, overdue receivables (typically from 30 days on), a complete balance sheet, and current expenditures. These reports should be generated with full financial controls in effect.
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Establish a collection policy.
A consistent, written HOA rule about collections can help keep assessments current and protects the association’s financial health. Outline how and when late fees apply, and enforce this policy with fairness and impartiality. Many communities include convenient payment options, such as automatic withdrawals, to help owners stay current.
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Review your insurance coverage regularly.
HOA insurance costs in California are rising, and insurance is typically one of the largest and most important expenses in any community budget. Reviewing your coverage each year helps confirm that your policy still fits your property’s needs and current replacement values. Partnering with your property manager or an experienced insurance professional can help identify potential gaps or unnecessary overlaps so your community stays protected without overspending.
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Keep your auditor on speed dial.
Think of your auditor as one of your best friends — someone whom you want to see on a regular basis. Keep them updated on any issues that could affect the financial wellbeing of your association. An annual meeting is the minimum, so try to make it more often. A few more tips: appropriately document and execute surplus resolutions, and read (and take action on) the post-annual audit letter they give you each year.
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Keep your eyes on the horizon.
Your position on your board can sometimes feel like a full-time job. Yet there are issues that continually develop that will affect owners associations across the state, from San Francisco to Los Angeles to San Diego and beyond. Keep updated through the Community Associations Institute (CAI) and use the resources they have available to stay apprised of these trends. This will help you plan proactively rather than reactively, and that makes for healthier communities.
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Put a regional controller to work.
Good California community management companies will offer an additional layer of oversight in the form of regional controllers. These professionals will meet with you to keep their fingers on the pulse of important issues like budgeting, delinquencies, and your overall finances. They’ll even review your monthly finances so they can give you an in-depth perspective on both daily expenditures and long-term objectives.