Most HOAs inherit their accounting method from the last board, who got it from the board before them. No one remembers why they chose it. No one asks if it’s still working.
In the beginning, it might’ve made sense. The budget was smaller. Fewer units, fewer moving parts. But over time, cracks start to show. Dues come in late. Bills go unpaid. Financial reports don’t match reality. And no one’s quite sure how much is really sitting in reserves.
That’s when the board starts to feel the pressure. Owners start asking questions. Projects stall. And the people in charge have to explain numbers they didn’t set up and don’t fully understand.
All of that comes back to one simple issue: your accounting method might not match the size or needs of your HOA anymore.
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Cash vs. Accrual: What’s the Actual Difference?
Let’s say your HOA sends out dues notices in January. One homeowner pays right away. Another pays in March. A third still hasn’t paid by June.
With cash accounting, only the January payment shows up in your January report. The rest don’t appear until the money hits the account. It’s simple. You track money when it moves. But that simplicity creates gaps. Your financial reports won’t show what’s missing.
Accrual accounting records all three dues in January, the month you billed them. You can see what’s owed, what’s paid, and what’s late, even when the money hasn’t hit the bank yet.
This difference affects more than timing. It changes how you:
- Track dues: Cash hides unpaid invoices. Accrual shows them clearly.
- Plan reserves: Accrual gives you a future-facing view. Cash doesn’t.
- Explain shortfalls: Cash creates mystery. Accrual tells a story.
Most HOAs start with cash accounting because it feels easier. But as the community grows, accrual gives the board more clarity and more control.
If the books feel off even when the balance looks fine, this could be why.
Which One Makes More Sense for HOAs?
Most accountants recommend accrual for HOAs, and there’s a good reason for it. Accrual gives boards a clear picture of the financial health of the community, not just the bank balance.
Let’s say your HOA has £20,000 in the bank. Looks fine on paper. But you haven’t paid the landscaping bill, the insurance premium is due next month, and you still need to replace the roof on Building C. In cash accounting, none of that shows up. You see the £20,000 and think you’re in good shape. Accrual shows the whole picture.
That’s why accrual works best for HOAs with long-term projects, reserve planning, or regular service contracts. It helps boards avoid mistakes like:
- Thinking they have a surplus, when they don’t
- Missing unpaid invoices
- Underfunding reserves until it’s too late
Most CPA firms and auditors prefer accrual accounting because it creates a more accurate financial trail. It’s also better for forecasting and budgeting.
Still, not every HOA needs it right away. Smaller, self-managed communities often use cash accounting because it feels easier. If your only expenses are utilities, gardening, and a bit of admin, that might work for a while. But once things scale up, cash accounting starts to hide problems.
That’s when most boards switch. Not by choice. They feel pushed. Money goes missing in the gaps and the reports stop making sense.
Accrual brings those answers back into focus.
What Do the Rules Say
Before choosing between cash and accrual, check the rules. Some HOAs don’t get a choice.
In a few states, law requires accrual accounting once your budget crosses a certain threshold. Some lenders ask for accrual reports before approving loans. Your governing documents might already spell it out, especially if your community was set up with outside financing.
Even if the rules don’t force your hand, other players might. Auditors often prefer accrual. So do reserve study providers and accountants. If your HOA works with any of them, it’s worth asking which method they expect.
Still, some HOAs do have a choice. And that’s where things get interesting.
If no one’s telling you what to do, pick the method that shows the most useful picture of your money. If the cash method hides upcoming bills or gives a false sense of surplus, it may cost you more in the long run. You don’t need to be fancy, just clear.
How We Help Boards Make the Right Call
One HOA came to us just after switching boards. The treasurer had stepped down, and no one could make sense of the records. They didn’t know who owed what or what system they were using. The reserves looked fine, but there was no way to know for sure.
We ran a full check and found they were still using cash accounting, even though they had large ongoing expenses. We showed the board how accrual accounting would give them a clearer picture of future costs. They made the switch and spotted a shortfall coming in six months.
Because they caught it early, they adjusted their budget and avoided a special assessment.
That’s the kind of work we do. We don’t push fancy tools or throw around accounting terms. We sit down with boards, look at real numbers, and figure out what makes sense. Sometimes it’s a full system change. Other times, it’s a small shift with a big result.
Boards that work with us don’t just get reports. They get clarity and they can make decisions with confidence.
Here’s a Simple Way to Decide
If you’re not sure which method to use, ask these three questions:
- Do we need to show future obligations clearly?
- Are we planning large projects or managing a detailed reserve?
- Are we struggling to see where we really stand financially?
If you nodded along, go with accrual accounting. You get a clear picture of your money and stronger planning.
If you said no across the board, cash accounting might still work. Things can look good on paper until a reserve study or big maintenance job lands.
This choice can change over time. Your HOA may grow or take on big jobs that stretch the budget.
SSL help HOAs review their accounting setup and switch systems when needed. If you’re stuck or second-guessing what you’ve got, we’re happy to take a look.
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