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.
A narrative budget may encourage less-experienced board members to participate more fully in your organization’s planning process. A narrative budget replaces the “pageful of numbers” approach with descriptive text illustrated by graphs and enough figures to convey the key items. Of course, you still need detailed financial projections to support the process
Remember that a great deal of financial and other data about your charity is available on the Canada Revenue Agency website. T3010 Charities Returns are published online. Certain confidential data is withheld, but much of the form is public. Proofread your return carefully and make sure that it contains accurate info for the public record.
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.)
Balance sheet relationships: Deferred Revenues are monies received now for work to be delivered later on. Some organizations track deferred government grants separately from other deferred revenues such as ticket subscriptions and prepaid facility rentals. If all is well, your cash balances will exceed the deferred amount, meaning that your deferred revenues are safely held for the point when you’re fulfilling the work to be done.
Balance sheet relationships: Accounts Payable captures supplier bills to be paid. If all is well, your cash balances plus your Accounts Receivable (amounts your customers owe you) will exceed the payables.
Make it a habit to review financial statements at every board meeting. Cultivate board familiarity with your numbers.
Learn how to read a bank reconciliation. Make sure you understand why the bank’s balance may be different from the balance in your books.
Generally Accepted Accounting Principles (GAAP) are the set of principles that govern the accounting profession and, by extension, the preparation of financial statements. See our Glossary for more definitions.