Understanding Nonprofit Financial Statements: The ABCs of Assets, Budget, and Net Assets

Introduction

In this 10-minute talk, Betsy Hall, a finance director with over 17 years of experience in the nonprofit sector, provides insight into the crucial elements of non-profit financial statements. Understanding assets, budgeting, and change in net assets is essential for assessing the financial health of a non-profit organization.

The ABCs of Non-profit Financial Statements

• The 10-minute talk is presented by Betsy Hall, the finance director at the DeKalb County Community Foundation.

• Betsy Hall has over 17 years of experience in the nonprofit sector, with previous experience in the for-profit sector as well.

• She holds a bachelor’s degree in accountancy from Northern Illinois University and recently earned her master’s in public administration.

• Betsy Hall is a CPA and is passionate about helping those who are not comfortable with non-profit financials.

Understanding Non-Profit Financial Statements

• Non-profit financial statements have three key elements that are crucial for non-profit leaders, board members, and anyone interested in financials.

• The first element is A for Assets, which is one of the most important numbers to know about a non-profit organization.

• Assets are located on the statement of financial position, also known as the balance sheet, and they define the size of the organization and measure it against others in the same sector.

• Asset size and makeup are indicators of cash, liquidity, and investments, and play a significant role in assessing the financial health of the non-profit.

Understanding Nonprofit Financial Statements

• The do good nonprofit has assets totaling just over two million dollars, with the majority tied up in a building and its contents. Accounts receivable and prepaid expenses form a smaller part of their assets, while cash and investments represent over a quarter of the total assets.

• Budgeting is an essential aspect of nonprofit organizations, as it helps in planning and allocating resources effectively. Budgets provide a roadmap for where the organization’s money will be utilized, rather than just accounting for past expenses.

• The budget is included in the statement of activities, or sometimes referred to as the income statement, as it outlines the financial activities of the nonprofit over a specific period.

Understanding Non-Profit Budgeting

• The income statement is a key tool for evaluating the financial health of a non-profit organization.

• Non-profits must strive for a balanced budget, where revenue equals expenses, or a surplus, where revenue exceeds expenses. A deficit occurs when expenses exceed revenue.

• Effectively budgeting enables a non-profit to demonstrate to donors and granters how their money is being utilized, rather than just showing where it went.

• The change in net assets, equivalent to net profit in the for-profit sector, measures the increase or decrease in reserves. It’s calculated as revenues minus expenses, and is crucial for assessing financial performance.

• Some non-profits share their change in net assets before depreciation, providing a clearer picture of their financial position.

Understanding Non-profit Financial Statements

• The change in net assets is a key element in understanding the financial health of an organization.

• It is equivalent to the cash increase or decrease and appears on both the statement of financial position and the statement of activities.

• Leadership and board members often have common questions about how well the organization is doing versus the budget or prior year, and the change in net assets helps to answer these questions.

• Understanding the ABCs for non-profit financial statements – A for assets, B for budget, and C for change in net assets – is crucial for grasping the organization’s financial condition.

Conclusion

Understanding the ABCs of non-profit financial statements – A for assets, B for budget, and C for change in net assets – is crucial for grasping the financial condition of an organization. Betsy Hall’s expertise offers valuable insights into these key elements for non-profit leaders, board members, and anyone interested in the financial health of non-profit organizations.

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