2012 Skills Based Summit - 3M, Understanding the Income Statement & Balance Sheet

2012 Skills Based Summit - 3M, Understanding the Income Statement & Balance Sheet

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  Contribution Net IncomeOverview Understanding Your Income Statement & Balance Sheet Nataliya Ongstad & Pamela Lindorfer, 3M 3M Confidential
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  Income Statement/Statement of Activities • The purpose of the income statement is to show managers and investors whether the company made or lost money during the period being reported. – Represents a period of time (Month, year..) whereas the Balance Sheet is at a point in time – Based on an accrual system (current standard practice for nonprofits) recognizes income when it’s promised and expenses when they’re obligated. • Insight about Income Statement can be gained by comparison to relative data points such as last year, budget, % or revenue, trailing 12 month average…..
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  Bikes for KidsIncome Statement
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  Bikes for KidsIncome Statement 2011 2012 Purchases Purchases Income Income 33% 47%
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  Questions about theIncome Statement • Is there an operating surplus or deficit? • Are items in line with budget and/or last year? ($ and/or % of revenue basis) • Do the numbers align with what is understood about the business? (Wages are up due to the addition of a new manager) • Is the recording in compliance with the expectations of the Board and organizations that are contributing to the nonprofit?
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  Balance Sheet/Statement ofPosition • Snapshot of what an organization is worth at a given time • Assets = Liabilities + Net Assets – Assets- economic resources owned by an organization that can be converted into cash – Liabilities- any financial obligations that an organization has to fulfill – Net Assets- Can be in three categories: unrestricted, temporarily restricted and permanently restricted • Similar to the Income Statement, insights about the Balance Sheet can be gained by comparing items to relative comparison points. – Assets – Liabilities (Can we pay our bills?) Ratio (Assets/Liabilities) – Bike Inventory/Assets – How much of our value is inventory? – Contributions receivable (BS)/Total Contributions (IS) – How quickly do we collect on our receivables?
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  Bikes for KidsBalance Sheet
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  Questions about theBalance Sheet • Do the cash and cash equivalents exceed the accounts payable? i.e. Can we pay the bills? • What do our balance sheet metrics indicate? Are we financially healthy? • Do the total current assets exceed the current liabilities? • Is the change in net assets negative or positive? • Is the number shown for total net assets a positive or negative number?
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  Additional Resources • MinnesotaCouncil of Nonprofits Website www.minnesotanonprofits.org/ • Guide to Non-profits From the Trenches Sheila G. Shanker, CPA • Nonprofit Bookkeeping & Accounting for Dummies, Sharon Farris • MAP for Nonprofits Website www.mapfornonprofits.org
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  Contribution Net IncomeOverview Definitions • Accrual – Recognition of cost when the work is performed, compared to when it is invoiced • Depreciation – Recognition of the cost of an asset on the Income Statement spread out over the assets useful life • Unrestricted Net Assets- When a donor doesn’t put any restrictions on the contribution • Temporarily Restricted Net Assets- When a donor has a restriction on the contribution (other than to be held in perpetuity) • Permanently Restricted Net Assets- When organization receives a contribution where donor stipulates that it must be held in perpetuity (i.e. only interest on principal can be used by the nonprofit)