Before you can report on the year, you need to finalize the numbers. "Closing the books" means completing all entries and reconciliations for the fiscal year.

Year-end close checklist:

• Record all income and expenses through year-end
• Reconcile all bank accounts to final statements
• Record any accrued expenses (bills received but not yet paid)
• Review prepaid expenses and adjust as needed
• Verify all reserve transfers have been recorded
• Confirm accounts receivable matches delinquency reports
• Record depreciation on association assets (if applicable)

Common year-end adjustments:

• Reclassifying expenses posted to wrong accounts
• Writing off uncollectable receivables
• Adjusting for invoices that span fiscal years
• Correcting any errors discovered during close process

Allow 2-4 weeks after year-end for the close process. Rushing leads to errors that require correction later.

Once books are closed, prepare the final financial statements for the year.

Required statements:

• Balance Sheet: Shows assets, liabilities, and fund balance at year-end
• Income Statement: Shows full-year income and expenses compared to budget
• Statement of Cash Flows: Shows how cash moved during the year (sometimes required by governing documents or lenders)

Additional reports to prepare:

• Budget variance report: Line-by-line comparison of budget to actual
• Reserve fund summary: Beginning balance, contributions, expenditures, ending balance
• Accounts receivable aging: Final delinquency status
• Capital project summary: Completed projects and costs

Format considerations:

• Use accrual basis accounting (GAAP) for formal statements
• Include comparative data (prior year or budget) for context
• Note any significant items or unusual transactions
• Have statements reviewed for accuracy before distribution

Many associations have their financial statements examined by an independent CPA. The level of examination varies.

Types of CPA engagements:

• Compilation: CPA organizes information into financial statement format without verification. Minimal assurance.
• Review: CPA performs analytical procedures and inquiries. Moderate assurance.
• Audit: CPA performs detailed testing and verification. Highest assurance.

When each level is appropriate:

• Small associations (under $100K budget): Compilation often sufficient
• Medium associations: Review provides reasonable assurance at moderate cost
• Large associations or complex finances: Full audit recommended
• When documents require it: Check your Bylaws for requirements

Preparing for the CPA:

• Provide complete, reconciled records
• Have supporting documentation organized and accessible
• Be available to answer questions
• Start early to avoid delays in completing the engagement

The cost of an audit or review is an investment in accountability. It protects the board and provides assurance to members that finances are properly managed.

Community associations have tax filing obligations at both federal and state levels.

Federal tax return:

• Most HOAs file Form 1120-H (U.S. Income Tax Return for Homeowners Associations)
• Alternatively, Form 1120 (standard corporate return) can be used
• Form 1120-H provides a flat 30% tax rate on net non-exempt income
• Due date: 15th day of 4th month after fiscal year-end (typically April 15 for calendar year associations)
• Extensions available using Form 7004

Tennessee tax obligations:

• Tennessee has no state income tax on wages, but does tax investment income
• Most associations have minimal Tennessee tax obligations
• Franchise and excise tax may apply depending on structure and income
• Consult a CPA familiar with Tennessee community associations

Other filings:

• Annual report: Tennessee requires annual reports for corporations to maintain good standing
• 1099s: File for independent contractors paid $600+ during the year
• W-2s: If the association has employees

Members have a right to know how their money is being managed. Year-end is the natural time for comprehensive reporting.

What to communicate:

• Summary of financial position (assets, liabilities, reserves)
• How actual spending compared to budget
• Reserve fund status and funding level
• Major expenditures and projects completed
• Outlook for the coming year

Delivery methods:

• Include in annual meeting materials
• Post to owner portal for online access
• Mail summary with assessment notices
• Make full statements available upon request

Best practices:

• Provide both summary for quick understanding and detail for those who want it
• Use charts and graphs to illustrate key points
• Compare to prior year for context
• Address any significant variances or unusual items
• Be available to answer questions at the annual meeting

Use this checklist to ensure nothing falls through the cracks.

Before year-end:

• Review contracts expiring and plan renewals
• Confirm all invoices for the year have been received
• Finalize next year's budget
• Schedule CPA engagement if using external accountant

Immediately after year-end:

• Complete final bank reconciliations
• Record all year-end accruals and adjustments
• Close the books for the fiscal year
• Prepare year-end financial statements

Within 30-60 days:

• Complete audit/review/compilation engagement
• File 1099s (due January 31)
• Distribute year-end financial summary to members
• Present financials at annual meeting

Within 90-120 days:

• File federal tax return (or extension)
• File state annual report
• Address any findings from CPA engagement
• Archive year-end records properly