for non-profit organizations presented by henrietta jordan
Post on 14-Dec-2015
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Why Financial Statements MatterInternal management and decision
makingAccountability and transparencyDonor confidence and informationReporting to fundersInternal Revenue ServiceState regulatory agencies
PURPOSE OF FINANCIAL REPORTS
Snapshot of where you areStory of what happened – financiallyHelp you understand what you need to do
to achieve your goals
Financial StatementsStatement of Financial Position (aka
Balance Sheet)Statement of Activities (aka Profit and
Loss Statement)Statement of Cash FlowBudget Comparison
Relationships between StatementsStatement of Financial Position – assets
and liabilities at a single point in timeStatement of Activities – financial activity
over a period of timeBudget Comparison – performance vs.
expectationsCash flows – sources and uses of cash over
a period of time
Statement of Financial PositionSnapshot – single point in timeAssets of the organization – what it
ownsLiabilities of the organization – what it
owes to othersNet assets – what is left over
Assets: what you own Cash & cash equivalents Investments Real property Accounts receivable (contracts, grants) Pledges receivable Prepaid expenses Leasehold improvements Furniture Equipment Depreciation (a minus number!)
What’s a Restricted Asset? Donation for a specific purpose Bequest for a specific use Funds to be used during a specific time
period The asset is RESTRICTED and can only be used
in keeping with the donor’s intent
Temporary vs. Permanent Restrictions on Assets
Temporary Restriction: Asset given for a specific purpose, but it can be expended for that purpose (released from restriction)
Permanent Restriction: Asset can NEVER be expended; interest/dividends may be used, in keeping with donor intent (endowment)
Liabilities Unpaid wages Undeposited payroll taxes Accrued vacation pay Unpaid bills Loans payable Unearned income (deferred revenue) Other?
Chart of Accounts The heart of your accounting system Method of classifying assets, liabilities,
income and expenses Should reflect the programs and activities of
the organization More accounts = more information but also
more work! Develop with professional advice
Why is it called a balance sheet?The Accounting Equation
Assets = net assets plus liabilities Or, more logically,Assets minus liabilities = net assets
Statement of ActivitiesFinancial activity over a period of time –
a month, a quarter, a yearIncome (revenues) and expensesTransactions posted and classified by
source and function (accounts)Sometimes called profit/loss statement
Functional Classification of Expenses Program – expenses related to carrying out the work of the
organization (salaries/benefits of program staff, program supplies, portion of occupancy)
Fundraising – expenses related to soliciting contributions for the organization (portion of salary & benefits of staff participating in grantwriting, special events, donor cultivation, portion of occupancy)
Administration – expenses not related to program or fundraising but that are essential to the organization’s operation (salaries, benefits of finance staff, portion of ED’s salary and benefits, board-related costs, portion of occupancy)
Accrual basis accounting Matches income with revenue (shows costs in
the period they were incurred; matches them with revenues)
More accurate picture of financial activities & status than cash basis
Shows accounts receivable, accounts payable
Capitalization and Depreciation Spreads the cost of major equipment over its useful life Computer system costing $3,000 with a 3-year depreciation
scheduleo Initially listed as an asseto Depreciation (cost) = $1,000/yro Annual cost listed as expense on Statement of Activitieso Accumulated depreciation subtracted from asset’s value
on balance sheeto At end of 3 years?
You decide: what is it?Asset, liability, income or expense?
RentSuppliesLand owned by the organizationGrantPayroll taxesDonationLawyer who gives services for freeLoanComputer systemDepreciation on computer system
The Answers . . . Rent (EXPENSE) Supplies (EXPENSE) Land owned by the organization (ASSET) Grant (INCOME and LIABILITY) Payroll taxes (EXPENSE and LIABILITY) Donation (INCOME and ASSET) Lawyer who gives services for free (IN-KIND INCOME) Loan (LIABILITY) Computer system (ASSET) Depreciation on computer system (EXPENSE and CONTRA-
ASSET)
Budgeting Critical document for management Sources of information (prior year’s income &
expenses, anticipated increases/decreases, new programs)
What’s the plan? Process: who develops the first draft? How is
it marked up? Contingency Final approval by the board
Budget Comparison Side by side: Budgeted vs. Actual Percentage of anticipated revenues and
expenses to date Annotate to explain why income & expenses
happening unusually quickly or slowly Reviewed by board or finance committee at
least quarterly
Financial ReservesYour rainy-day fundEnough to cover 3-6 months of operating
expensesLiquidity?(Net unrestricted assets)
Internal Controls First line of defense against misuse of
organization’s funds Documented in accounting procedures Based on segregation of duties among several
different people in: Receiving donations Preparing deposits Authorizing expenditures Reconciling the bank statement
More important safeguardsAccount for staff time through
timesheetsLock it up!Secure recordkeeping systems
Independent Financial Review(by a CPA)
Compilation of Financial Statements Review of Financial Statements Audit
What is financial leadership?Decision makers . . . . Have timely and accurate financial data Periodically assess the financial condition of
activities and the organization as a whole Plan around a set of meaningful financial
goals Effectively communicate progress internally
and to stakeholders
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