Quick Answer: HOA accounting services cover the bookkeeping, financial statements, reserve tracking, assessment billing, delinquency reporting and tax filings (Form 1120-H or 1120) that a homeowners association, condominium or co-op needs to run properly. Precision provides these for boards and property managers nationwide, using fund accounting so operating money and reserve money are never mixed.
Association accounting is fund accounting, and most bookkeepers have never done it
A homeowners association is not a small business. It collects money from members for two very different purposes, and the law, the governing documents and the members all expect those two pools to be kept apart. The operating fund pays this year’s landscaping, insurance, management fees and utilities. The reserve fund is set aside for the roof, the paving, the elevators and the pool deck that will need replacing in five, ten or twenty years. When a bookkeeper runs an association on a single-company chart of accounts, reserve money quietly funds operating shortfalls, the board loses sight of what is actually set aside, and the next reserve study becomes an unpleasant surprise.
We keep associations on true fund accounting: separate funds, separate bank accounts where the documents require it, interfund transfers recorded explicitly and approved by the board, and financial statements that show each fund’s balance on its own. If you are new to the structure, our guide to how HOA accounting works walks through the funds, the statements and the board’s responsibilities.
What we handle for associations
Monthly bookkeeping and financial statements
Assessment billing and receipts, vendor bills and payments, bank and reserve account reconciliations, and a monthly package built for a volunteer board: balance sheet by fund, income statement against budget with variances explained in plain English, reserve fund activity, and an aged delinquency report. The package is designed so a treasurer who is not an accountant can read it in ten minutes and know whether the association is on track.
Budgets and assessment planning
We build the annual operating budget with the board and manager, tie the reserve contribution to the current reserve study, and model what the regular assessment needs to be to cover both. When the numbers do not work, we show the board the real choices: raise the assessment, phase in the reserve contribution, or plan a special assessment, with the cash-flow effect of each.
Reserve fund accounting
Reserve contributions, interest, and every reserve expenditure are tracked against the components in the reserve study, so the board can see funding percentage by component and not just a single reserve balance. Where a state requires a formal reserve study or structural reserve review, the accounting is set up to match its categories. This is the part of association accounting where a generic bookkeeper does the most damage, and it is the reason “reserve fund accounting” is one of the most common questions boards bring to us.
Delinquent assessments and collections support
Aged receivable reporting by unit, late fee and interest application in line with the governing documents, payment plan tracking, and clean records for the attorney when an account moves to lien or collection. Boards cannot enforce what they cannot document.
Special assessments and loans
Special assessments are accounted for as their own fund or project, so the board can show members exactly what was collected and exactly what it was spent on. Association loans for capital projects are tracked with the draw schedule, the debt service and the assessment that repays it.
Tax returns: Form 1120-H or Form 1120
Almost every association must file a federal return even when it owes nothing. The choice between Form 1120-H (the Section 528 election, a flat 30% on non-exempt income such as interest and non-member revenue, with exempt function income excluded) and regular Form 1120 (a 21% rate but with membership income and surpluses exposed unless handled carefully) is made every year, and the wrong choice costs real money. We run the comparison annually and explain the answer in our article on Form 1120-H versus Form 1120 for associations. To qualify for 1120-H, an association must meet the 60% income, 90% expenditure and 85% residential tests; the residential test is measured differently for condominiums than for planned communities, which is a detail generalist preparers regularly get wrong.
Preparing for an independent audit or review
Many governing documents and several states require an annual audit or review by an independent CPA. Precision does not perform audits. What we do is keep the books audit-ready all year and work directly with the auditor, so the engagement is faster, cheaper and does not turn up surprises.
Who we work with
Boards and treasurers who want statements they can actually read, a clear picture of reserves, and someone to call before the annual meeting. Property management companies that need reliable back-office accounting for a portfolio of associations without hiring a controller, and that want each association’s books kept separately and cleanly. Condominiums, homeowners associations, cooperative corporations and mixed-use associations, from a single building to a master association with sub-associations.
Managers who also hold funds for associations should be aware that the fiduciary rules are stricter than most people expect. We cover that side in property management trust accounting.
A worked example: the reserve that was not there
An association with 120 units collects $400 per unit per month, $48,000 a month, and budgets $9,000 of that as the reserve contribution. On paper the reserve should grow by $108,000 a year. But the books are kept as one company. Operating costs run over budget by $60,000 during a hard winter, and because everything sits in one account nobody notices that the reserve contribution was never actually funded. Three years later the reserve study calls for a $410,000 roof replacement and the “reserve” balance is $95,000. The board’s only options are a special assessment of roughly $2,600 per unit or a bank loan. With fund accounting, the shortfall shows up in the first month as a negative interfund balance on the balance sheet, and the board can act while the fix is a $40 assessment increase instead of a $2,600 special assessment.
Common association accounting mistakes we clean up
Reserve and operating money in one account. Special assessments recorded as ordinary income. Late fees never applied, so delinquencies compound with no leverage. Prepaid assessments booked as revenue in the wrong year. Filing Form 1120 when 1120-H would have been cheaper, or filing 1120-H when the association failed the 60% income test because of clubhouse rental revenue. Reserve expenditures charged to operating, which makes the operating fund look worse and the reserve look better than either really is. No accrual of insurance or the reserve study fee, so the December statements are meaningless.
How the engagement works
We start with a review of the governing documents, the last reserve study, the prior year’s return and the current books, and give the board a written summary of what needs to change. Then we take over monthly accounting, deliver the board package on a fixed schedule, attend the budget meeting, and file the return. Associations with a manager keep their manager; we work alongside the management company and use their software where that makes sense.
Precision Accounting & Consulting is based in Melville, New York and serves associations nationwide. Commercial associations and mixed-use buildings with retail tenants often also need CAM reconciliation, which we handle under the same engagement.
Frequently asked questions
What is HOA reserve fund accounting?
It is the tracking of money set aside for future major repairs and replacements separately from day-to-day operating money, with contributions and spending matched to the components in the association’s reserve study. Done properly, the board can see the funding level of each component, not just a single balance.
What financial statements should an HOA produce every month?
At minimum a balance sheet showing each fund separately, an income statement compared with budget, a reserve fund activity report, an aged delinquency report by unit, and bank reconciliations for every account. Annual statements should be prepared on the accrual basis unless the documents say otherwise.
Should our association file Form 1120-H or Form 1120?
It depends on the mix of income. 1120-H is simpler and taxes only non-exempt income at 30%, but requires the association to pass the income, expenditure and residential tests. 1120 applies a 21% rate but exposes more income and requires careful handling of membership surpluses. The decision should be made every year with the actual numbers, not carried forward by habit.
Do you work with property management companies or only with boards?
Both. Many of our association clients come through their management company, and we keep each association’s books separately, report to each board, and coordinate with the manager on billing, vendors and collections.
Can you take over books that are behind or in bad shape?
Yes. Catch-up and clean-up work is a normal starting point for association clients. We rebuild the fund balances from the bank records and prior statements, document the corrections for the board, and then move to a normal monthly cadence.
This page is general information about association accounting and is not advice for any specific association. Tax and reporting requirements vary by state and by governing documents.
Talk to an accountant who works with associations
If your board or management company needs association books that separate operating from reserves, a monthly package a treasurer can read, and the right federal return filed every year, tell us about the association and we will give you a straight answer.