Reading Financial Statements

In this content, various aspects of financial statements are discussed, including the basis of accounting, auditing processes, and types of financial statements like Balance Sheet and Income Statement. The importance of understanding these statements for managing grants, tracking programs, and ensuring liquidity is highlighted. Readers will gain insights into recognizing revenue and expenses, different accounting principles, and the significance of audited financial information.

• Financial Statements
• Accounting Principles
• Auditing Process
• Balance Sheet
• Income Statement

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1. Reading Financial Statements September 14, 2021 Presented by Cassandra Langley and Brenda Malottke

2. Financial Statements are just a lot of numbers on a page The financial statements are the accountant s thing As long as I know what s being spent on our grants, I don t really need to get involved with the rest I have to track my programs and invoicing on spreadsheets anyway, so the financial statements don t help me I don t understand what the bank means when they talk about liquidity and credit risk, but we need a line of credit!

3. Basis of accounting Cash revenue and expenses are recognized when money changes hands OCBOA: other comprehensive basis of accounting Basis used for personal finances Which does your organization use? Accrual - revenue and expenses are recognized when there is a commitment for the transaction GAAP: generally accepted accounting principles Required for publicly traded companies and standard for for-profit companies

4. Unaudited, Audited or Reviewed Unaudited Prepared by staff or a bookkeeper/accountant on a monthly or quarterly frequency Representation of management as to financial activity of the organization Responsibility for completeness and accuracy rests with management Form and content will be determined by needs of management and board Audited Reviewed Prepared by independent CPA annually Prepared by independent CPA annually Testing has been performed to determine completeness and accuracy Procedures limited to analytical review and inquiries of management Form and content will be determined by Generally Accepted Accounting Principles (GAAP) Form and content will be determined by Generally Accepted Accounting Principles (GAAP) Includes an opinion regarding fair presentation of financial information Does not include an opinion regarding fair presentation of financial information

5. Financial Statements include Nonprofit organizations For-profit companies Balance Sheet Income Statement Statement of Cash Flows Notes Statement of Financial Position Statement of Activities Statement of Cash Flows Notes Additional requirement for nonprofits: Statement of Functional Expenses

6. Statement of Financial Position Statement of Financial Position Cash Basis ASSETS: - Cash and Investments - Equipment - (Accumulated Depreciation) Accrual Basis ASSETS: - Cash and Investments - Receivables - Prepaid Expenses and Deposits - Equipment - (Accumulated Depreciation) LIABILITIES: - Payroll Taxes - Loans LIABILITIES: - Accounts Payable and Accrued Expenses - Unearned or Deferred Revenue - Loans NET ASSETS: - Without Donor Restrictions - With Donor Restrictions - Year-to-Date Net Income (Loss) NET ASSETS: - Without Donor Restrictions - With Donor Restrictions - Year-to-Date Net income (Loss)

7. Cash Basis Accrual Basis STATEMENT OF FINANCIAL POSITION December 31, 2019 (With Summarized Financial Information as of December 31, 2018) 2019 2018 Statements of Assets and Net Assets December 31, 2018, and 2017 ASSETS Cash and cash equivalents Grants and contributions receivable Other receivables Inventory Prepaid expenses Investments Property and equipment, net Security deposit TOTAL ASSETS 1,383,216 3,161,574 143,983 20,125 73,560 7,582,892 555,311 5,212 12,925,873 $ $ 1,042,067 $ 4,664,749 69,700 23,755 89,808 4,810,722 624,559 11,330,572 $ 2018 2017 Assets Current assets Cash and cash equivalents $ 104,486 $ 126,523 Property and equipment, net 1,199 - 5,212 Other Assets Security deposit LIABILITIES AND NET ASSETS Liabilities Accounts payable and accrued expenses Contract liabilities Deferred rent and lease incentives TOTAL LIABILITIES 1,500 1,500 Total assets $ 107,185 $ 128,023 $ 1,961,167 336,787 1,028,360 3,326,314 $ 663,744 494,473 1,116,887 2,275,104 Net assets Without donor restrictions 107,185 128,023 Net Assets Without donor restrictions With donor restrictions TOTAL NET ASSETS Total net assets $ 107,185 $ 128,023 5,980,010 3,619,549 9,599,559 6,239,457 2,816,011 9,055,468 TOTAL LIABILITIES AND NET ASSETS 12,925,873 $ 11,330,572 $

8. Statement of Activity Statement of Activity Revenues: - Contributed * Without Donor Restrictions * With Donor Restrictions - Earned - Fundraising Events - Other - Releases from Restrictions Operating vs Non-operating Related to the core business or mission: - Normal, recurring revenue streams - Personnel costs for management and program implementation - Facilities/Occupancy costs for staff and program space - Office and program supplies - General business expenses Expenses: - Natural - Funding Source - Functional Not related to the core business or mission: - Investment portfolio activity - Costs of bond issues - Write-off of debt obligations Changes in Net Assets: - Without Donor Restrictions - With Donor Restrictions

9. Cash Basis Accrual Basis STATEMENT OF ACTIVITIES For the Year Ended December 31, 2019 (With Summarized Financial Information for the Year Ended December 31, 2018) Without Donor Restrictions With Donor 2019 Total 2018 Total Restrictions Statements of Support, Revenue and Expenses Years Ended December 31, 2018 and 2017 OPERATING REVENUE AND SUPPORT Grants and contributions Government grants In-kind contributions Program service fees: Contracts and royalties Conference Membership Dues Other income Net assets released from restrictions: Satisfaction of program restrictions TOTAL OPERATING REVENUE AND SUPPORT OPERATING EXPENSES Program Services 4,060,005 $ 540,830 104,254 5,278,485 $ 9,338,490 $ 540,830 104,254 10,474,740 $ 396,184 23,940,524 2018 2017 Public support Contributions Special events revenue Interest and dividend income Total public support Functional expenses Program Management and general Fundraising Total functional expenses Change in net assets Net assets - beginning of year Net assets - end of year $ 678,039 $ 517,731 160,267 $ 676,194 $ 451,535 224,560 984,638 660,685 240,994 20,486 984,638 660,685 240,994 20,486 545,080 559,100 208,448 10,136 41 99 $ 503,425 47,241 148,211 698,877 (20,838) 128,023 107,185 $ 434,943 49,887 175,522 660,352 15,842 112,181 128,023 4,474,947 (4,474,947) - - 11,086,839 803,538 11,890,377 36,134,212 7,862,904 - 7,862,904 33,841,710 Supporting Services: Management and general Development Total Supporting Services 2,085,432 2,122,016 4,207,448 - - - 2,085,432 2,122,016 4,207,448 2,339,054 625,395 2,964,449 TOTAL OPERATING EXPENSES 12,070,352 (983,513) 803,538 - 12,070,352 (179,975) 36,806,159 (671,947) Change in net assets from operations NON-OPERATING ACTIVITIES Investment income (loss) 724,066 - 724,066 (208,591) CHANGE IN NET ASSETS NET ASSETS, BEGINNING OF YEAR (259,447) 6,239,457 803,538 2,816,011 544,091 9,055,468 (880,538) 9,936,006 NET ASSETS, END OF YEAR 5,980,010 $ 3,619,549 $ 9,599,559 $ 9,055,468 $

10. Statement of Cash Flows Statement of Cash Flows Operating: - What you were established to do * Receive fund from donors, grantors or members * Pay staff and contractors * Buy materials and supplies Investing: - Tied to assets held * Purchases and sales of property and equipment * Investment earnings, gains (losses) Usually prepared by CPA! Direct vs Indirect Direct: - Preferred by FASB but infrequently used - Requires tracking cash transactions separately Indirect: - Most common presentation - Begins with net income - Adjust for non-cash items - Impact of changes in other asset and liability balances during the period Financing: - Raising funds through obligations * Capital leases * Debt to banks or agencies

11. Cash Basis Accrual Basis STATEMENT OF CASH FLOWS For the Year Ended December 31, 2019 (With Summarized Financial Information for the Year Ended December 31, 2018) Statements of Cash Flows Years Ended December 31, 2018 and 2017 2019 2018 CASH FLOWS FROM OPERATING ACTIVITIES Change in net assets Adjustments to reconcile change in net assets to net cash provided by (used in) operating activities Depreciation and amortization Unrealized (gain) loss on investments Realized gain on investments Bad debt expense Loss on the disposal of assets-inventory Changes in assets and liabilities: Grants and contributions receivable Other receivables Inventory Prepaid expenses Security deposit Accounts payable and accrued expenses Lease obligation Contract liabilities Deferred rent and lease incentives NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 2018 2017 $ 544,091 (880,538) $ Cash flows from operating activities Cash received from contributions Cash paid for administrative expenses Net cash provided by (used in) operating activities) $ 678,039 (698,877) (20,838) 676,194 (660,352) 15,842 $ 81,647 (521,532) (47,511) 79,916 373,424 (33,783) 24,250 - - 7,659 Cash flows (used in) investing activities Purchase of property and equipment (1,199) - 1,503,175 (74,283) 16,248 1,297,423 (157,686) (88,527) 2,556,675 (1,250,426) (11,798) 11,226 (15,722) 17,728 42,878 (19,038) 88,438 (79,783) (1,645,569) Net increase (decrease) in cash (22,037) 15,842 3,630 Cash and cash equivalents - beginning of year 126,523 110,681 - Cash and cash equivalents - end of year $ 104,486 $ 126,523 - CASH FLOWS FROM INVESTING ACTIVITIES Purchases of investments Proceeds from sale of investments Purchases of property and equipment NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (5,737,513) 3,534,386 (12,399) (2,215,526) (2,303,891) 3,873,904 (20,069) 1,549,944 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 341,149 (95,625) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,042,067 1,137,692 CASH AND CASH EQUIVALENTS, END OF YEAR 1,383,216 $ 1,042,067 $

12. Statement of Functional Expense Statement of Functional Expense No for-profit equivalent Expenses only: Personnel Supplies Dues and Subs Occupancy Travel Interest Insurance Depreciation Total F U N C T I O N A L Program Mgmt & Gen Fundraising Total N A T U R A L __________ $ ____________ $ ___________ $ ___________ $

13. Cash Basis Statements of Functional Expenses Year Ended December 31, 2018 (With Summarized Comparative Totals for 2017) Management and General Program Fundraising 2018 2017 Maintenance and landscaping Compensation Winter lighting Real estate fundraiser Rent expense Bookkeeping and audit Office expense Gala Other cultivation expenses Signage Printing Insurance Website Payroll service Bank and credit card charges Total $ 379,204 71,972 37,573 $ $ 379,204 158,937 37,573 16,904 26,444 17,867 11,592 21,244 1,701 1,700 10,349 6,983 2,527 3,627 2,225 698,877 $ $ 305,674 167,386 42,214 29,261 27,552 18,547 9,959 23,863 6,579 2,913 10,959 6,708 2,216 3,205 3,316 660,352 $ 12,870 $ 74,095 16,904 13,222 10,578 2,644 17,867 1,025 4,098 6,469 21,244 1,701 1,700 10,349 6,983 2,527 $ 3,627 2,225 47,241 $ 503,425 $ 148,211

14. Accrual Basis STATEMENT OF FUNCTIONAL EXPENSES For the Year Ended December 31, 2019 (With Summarized Financial Information for the Year Ended December 31, 2018) Supporting Services Total Program Services Management and General Supporting Services 2019 Total 2018 Total Development Grants, scholarships and awards Personnel Consulting and contracted services Conference and events Occupancy Member services Travel and meetings Bank fees Depreciation and amortization Accounting, audit and legal fees Dues and subscriptions Printing Telephone Insurance Office supplies State registration fees Miscellaneous Postage TOTAL EXPENSES BEFORE IN-KIND 3,799,139 $ 2,012,855 989,909 364,159 158,604 254,741 134,970 7,862,884 $ 1,389,602 296,349 91,070 25,607 123,524 26,622 71,432 14,397 15,241 12,594 2,085,432 - $ 323,416 1,733,012 31,860 11,951 2,122,016 - $ 1,713,018 2,029,361 122,930 37,558 123,524 35,935 71,432 14,847 15,241 12,594 4,207,448 - 3,799,139 $ 3,725,873 3,019,270 364,159 281,534 256,109 172,528 123,524 81,647 71,432 56,845 24,978 21,761 17,809 16,041 15,821 13,118 12,070,332 4,115,812 $ 4,142,729 3,294,027 445,821 306,181 84,456 179,026 48,279 79,916 75,254 20,537 20,672 20,196 19,359 13,326 12,732 45,458 12,928,057 - - - 1,368 - 1,368 - - 45,712 9,313 - 450 3,899 2,482 2,031 830 - - 2,772 - 41,998 19,511 12,184 9,971 12,920 580 524 5,107 1,568 7,095 5,807 2,291 5,467 9,577 7,838 3,121 865 3,637 8,744 4,276 In-kind public service announcements and advertising - - - - - 23,877,102 TOTAL OPERATING EXPENSES 7,862,884 2,085,432 2,122,016 4,207,448 12,070,332 36,805,159

15. Notes to the Financial Statements Generally, only prepared by CPA for external reporting (audit or review) One final resource Required for financial statements in accordance with GAAP Provide information on background and programs of organization Provide additional information on assets and liabilities, net assets, restrictions, liquidity, credit risk and subsequent events Consider would any of this information be useful for management or the Board during the year?

16. Financial Reporting Financial Reporting Package Package They are all interrelated Statement of Financial Position (SOFP) Statement of Activities (SOA) Statement of Cash Flows (SOCF) Statement of Functional Expense (SOFE) Notes to the Financial Statements Can you follow the numbers?

17. Questions? Emails can be directed to: Mindy@nonprofitmoco.org THANK YOU!