FINANCIAL RECORDS AND REPORTING
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Transcript of FINANCIAL RECORDS AND REPORTING
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FINANCIAL RECORDS AND REPORTING
FOR NON-PROFIT ORGANIZATIONS
Presented by Henrietta Jordan
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Why Financial Statements MatterInternal management and decision
makingAccountability and transparencyDonor confidence and informationReporting to fundersInternal Revenue ServiceState regulatory agencies
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PURPOSE OF FINANCIAL REPORTS
Snapshot of where you areStory of what happened – financiallyHelp you understand what you need to do
to achieve your goals
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Financial StatementsStatement of Financial Position (aka
Balance Sheet)Statement of Activities (aka Profit and
Loss Statement)Statement of Cash FlowBudget Comparison
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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
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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
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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!)
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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
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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)
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Liabilities Unpaid wages Undeposited payroll taxes Accrued vacation pay Unpaid bills Loans payable Unearned income (deferred revenue) Other?
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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
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Why is it called a balance sheet?The Accounting Equation
Assets = net assets plus liabilities Or, more logically,Assets minus liabilities = net assets
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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
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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)
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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
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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?
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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
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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)
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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
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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
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Financial ReservesYour rainy-day fundEnough to cover 3-6 months of operating
expensesLiquidity?(Net unrestricted assets)
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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
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More important safeguardsAccount for staff time through
timesheetsLock it up!Secure recordkeeping systems
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Independent Financial Review(by a CPA)
Compilation of Financial Statements Review of Financial Statements Audit
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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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Board Responsibilities Overall fiduciary responsibility for the
organization Hiring top management Approve budget Monitor results (reports) Take corrective action, if necessary Hire independent auditor