a) Statement of financial position, otherwise known as a balance sheet, reports assets, liabilities, and net worth by fund balances. A statement of position should include:
- Cash & equivalents
- Invested funds
- Capital items (land, buildings, equipment)
- = Total Assets Liabilities
- Accounts payable
- Debt payments
- Benefits payable
- Equity/Net Assets (Assets less Liabilities)
- Temporarily restricted
- Permanently restricted
- = Total Equity/Net Assets
The organization's financial position should be reviewed by the board of directors and management on a regular basis. Some of the questions the board should be asking include:
- Does a comparison of our position at this point in time to prior year-end show growing strength or weakness? What are the changes?
- What is the trend in our accounts receivable (A/R). Is there sufficient allowance for bad debt? Are the A/R increasing and what does an analysis of aging of A/R show?
- What are our liquid assets?
- What is the valuation of our fixed assets?
- What is the state of our current debt?
- What is the state of our current accounts payable?
- What is owed in benefits?
- Is our endowment growing
b) Statement of activity tracks gains and losses to show whether the past period was healthy and also shows actual operations in relation to the budget. This report includes income by fund and by source, expenses by both function and natural classification, and a comparison to both prior periods and to prior budgets. This will show the surplus or deficit for the current period. In addition the statement of activities should show the same year to date information.
Some questions boards of directors and management should ask related to a statement of activity are:
- What are the components of our income? What of each are restricted in some manner? What of each are transfers from the temporarily restricted fund and why?
- Are we earning interest on our funds and what are their uses?
- How do they compare to prior year and to budget?
- How do our expenses compare to last year and to budget?
- Are the variances within specific parameters approved by the board?
- Do the explanations of variances make sense? Are there warnings? Bases for celebration?
- What are management's concerns?
c) Cash Flow Statement reports on the availability of cash for operations. This statement provides a key indicator of the ability of the nonprofit to meet its current cash flow needs as well as projecting those needs for the year.
Some questions that should accompany a statement of cash flow are:
- Is our cash increasing or decreasing over time?
- How many days of cash are in hand? (Normal daily expense for running the organization divided by the amount of unrestricted cash.)