The only way not-for-profits can build up their net assets is to make more money than they spend. Watch that bottom line!
Financial Management, Assets, Revenue, Expense, Financial Statements
Assets are items that your company owns. These can be tangible or intangible, and they can be current or capital. See the glossary for more detailed definitions.
Equity, also known as Net Assets, represents the organization’s residual value – the amount of value left over after Liabilities have been subtracted from what you own.
If your organization had no liabilities, then its assets would equal its equity. This may be the case for very tiny organizations, but otherwise rarely happens. Most organizations accrue liabilities in the normal course of day to day operations.
For instance, if you open a credit account with a supplier, they will invoice you for goods or services and allow you a period of time – often a month – in which to pay. For that month, you are officially in debt, although you aren’t in any trouble! Your balance sheet needs to show that the supplier has a claim on a portion of your assets. You own a certain amount of cash, receivables and other assets… but your organization’s residual value is lower by the value of the outstanding debt.
Balance sheet relationships: If your organization owns capital assets (e.g. equipment, a building) you may see “Net Assets Invested in Capital Assets” in the Net Assets section of your balance sheet. This figure is the net book value of your capital assets minus any deferred capital grants. (In more complicated situations, additional items may be involved.)
Equity is a company’s residual value; the amount that would be left if assets were used to pay off liabilities. Not-for-profits refer to it as Net Assets. See our Glossary for more definitions.
Use a regular supplier but don’t want to use petty cash around the office or don’t have a company credit card? Try using a prepaid gift card in a low amount and treating it in the books like petty cash.
In accounting terminology, “current” is anything that is cash or will be converted to cash within this fiscal year. Current assets are cash and near-cash items, like receivables. Current liabilities must be paid in the short term. See our Glossary for more definitions.
Deposit cash regularly. The less you keep on your premises the better. Investigate after-hours deposit arrangements with your bank.
Your investment policies should provide guidance on risk tolerance. For many charities, preserving capital is more important than a high return.
Business chequing accounts generally pay little or no interest. Move excess cash to an interest-bearing investment account.
Financial health check-up: calculate your organization’s working capital by taking the difference between current assets (cash and items that will become cash in the short term) and current liabilities (obligations to be paid in the short term). A healthy organization will have positive working capital.