Discover the Billing Statement of Account Sample for NPOs

Billing statement of account sample for NPOs

okay welcome everybody my name is Kristen beermeyer I'm the marketing manager at Wagner CPAs and I'm so happy to have you all join us today um for this webinar on the basics of non-profit financial statements feel free to submit questions you have during the webinar today using the Q a feature at the bottom of your screen and we'll be sure to leave some time to answer all of your questions at the end of the webinar this presentation is being recorded and the presentation and slide deck will be emailed to you after today's event as well as available on the Wegner cpas.com website our presenter today is James Conrad a supervisor at Wagner CPAs and with that James I will turn it over to you wonderful thank you Chris and appreciate the introduction and hello everyone out there in the internet land um as Krista mentioned my name is James Conrad I am a supervisor here at Wegner CPAs and I'm going to be talking today about non-profit financial statements I imagine that many of you have uh questions and just are trying to unlock the puzzle that is financial statements and I'm aiming to help you out with that so today's learning objectives these were outlined in the initial email uh we want to identify the structure and composition of compiled non-profit financial statements and that word compiled has a specific meaning to it we're going to Define account groups and how they are important for the overall structure of an organization we're going to see that some have some have specific structures some have looser structure and we'll get into that we're going to look at the differences between the different basis of accounting um most of you are going to be familiar with cash and accrual and we're going to talk about the differences here today and we're going to look at some metrics to determine the health of an organization you can get a lot of information from one statement or a combination of the statements in Tandem and we're going to go over some of those today so a little about myself here I've been with Wagner since November of 2020 I've been a non-profit accountant specifically for the last about eight and a half years for those of you that have seen my presentations before accounting is not my first trade I was a meteorologist for several years before this but as I've mentioned before I like a job where I have to rewrite instead of where I try to be right so let's get into the um a few things here um what I wanted to highlight is today is meant to be an introduction you're going to have different financial information on different financial statements from different organizations and it's really important to contact your accounting professional or if you have an auditor an auditor for your very specific company issues and they can help you out with that and as I mentioned before every organization is going to be different however the basic structure of the financial statements are going to be pretty similar across the board you're going to find the order very similar and we're going to take a look at that in the examples and as prince crystal mentioned we're going to have a q a time if we have some time available here at the end and please submit your questions to the window okay so let's start way at the top there are four basic financial statements for a non-profit I'm going to start off with the statement of financial position and uh that's commonly known as the balance sheet in the for-profit world we have the statement of activities which is uh analogous to the profit and loss statement in the for-profit world we have the nonprofit specific statement of functional expenses and everyone's favorite statement of cash flows statement of cash flows could probably have an hour-long webinar on it itself we're going to just be taking a a cursory look at it not getting too complicated but this statement tends to be the one where people get tripped up on the most so I'm hoping to bring a little light to that so you may or may not see each statement in a different level of service for the financials um and how they're being created so I have a list here of kind of least stringent to most stringent there's uncompiled financials which are basically just your basic financials that are not necessarily reviewed by independent Authority there's compiled which is a comparable also known as a compilation those do go through a degree of review then there's the next step up which is review which is not as deep as an audit but it is deeper than a compilation there are additional procedures that need to be formed and then of course there's the audit which goes through um all of the testing procedures and whatnot that the Assurance Department either here at Wegner or other CPA firms across the country would do and throughout the presentation today I'm going to have the four statements up just to remind everybody where we're where we are where we're at and to commit them to Memory and the more you see it the more you're going to remember so uncompiled financials as I mentioned they are the lowest tier of service basically um usually made by internal accountants non-attesting accounting firms they're going to be basically your management reports and then frequently um I shouldn't say frequently occasionally the statement of cash flows will be omitted in a compilation and that would be denoted in the accountants report your uncompiled financials will most likely not have your statement of cash flows either and then specific to reviews and audits because of the additional level of review and Assurance there's always footnotes basically important information explanations disclosures that requires part of the review and audit process um populations can omit those footnotes and frequently do all right we're going to start off here the statement of financial position uh statement financial position in my opinion gives um the most information of all the of all the statements but um you could certainly get a lot of information from the remainder of the savings so as I mentioned before statement of financial position is comparable to the balance sheet for for-profit companies and what's really important to remember is that the statement of financial position is a snapshot of a point in time the point in time is important it is not a range it's a specific time that there are balances in specific accounts It's usually the end of a month a quarter or a fiscal year or a calendar year if you're on the app and it follows the basic accounting equation which is assets equals liabilities plus equity now those of you familiar with for-profit statements Equity um is presented as net assets on uh non-profit financial statements um there's no ownership for nonprofits that's one of the purposes of nonprofits that there are no shareholders there are the structure has a board that has oversight with the um either executive director CEO something to that effect structure can vary from company to company but it's important to know that asset is pretty equivalent to equity so in America there are specific sets of rules and regulations that financial statements should follow if you've heard of it gaap generally accepted accounting principles which uses the accrual method of accounting so that means when revenue or expenses have been earned or incurred that's when they are put on statements not necessarily one cash exchanges hands there are transactions where when cash exchanges hands that would also be on the books but then for other um for other transactions if cash doesn't change hands doesn't need to be on the books that's something we look into and then frequently when you see financials the non-profit financial statements in general but specifically the statement of position um you're going to have comparisons to a prior period and that's really important to see it gives you Trend analysis you'll be able to see what happened in the past is the company shrinking growing um usually as in for example in this example on the screen it's comparing year to year and um frequently that is what you're going to see in audits all right so at the very top of the statement of financial position you're going to get the assets section and simply put assets are what the organization owns it's uh things that um the company has gathered over time as part of its resources so off the the assets will be listed from most liquid to least liquid and when I say liquid it liquidity is the ability to be converted into Cash obviously cash and cash equivalents are going to be as liquid as you can get because by definition um however for an example a piece of stock is more liquid than a piece of land it takes longer to sell land than it would be to sell stock um so when you're looking at the order of the assets that is an important factor and then what's additional classifications not necessarily all financial statements are going to have this but often you will see a categorization between current and long-term assets so current assets are expected to be used or utilized within one year but long term is the opposite of that it's meant to be over one year so let's look at current assets first as I mentioned liquidity they're the most liquid and they often have the highest churn you're going to have for example accounts receivable and current assets and you expect your customers to pay you often to pay you have zero balance do more business for them and it just continuously Cycles through uh the current assets reflect the state of the company right now we or I mentioned before that they're expected to be used or utilized within one year it's kind of a a state of play so cash obviously is going to be most liquid at the top cash is King we've all heard that statement before and for most nonprofits it's true if you need cash to pay the bills your employees basically anything you could think of and if you don't have the cash you're in big trouble and then also in current assets we have Investments if you're fortunate enough to have a surplus or an excess of cash uh you can have stocks bonds other publicly traded instruments um frequently we'll see surpluses invested here maybe to make a little make interest or a little more than interest if the market is having a good time and again if your company is fortunate for that thumbs up also in a current assets accounts receivable when you've either made sales or you've provided Services it's what your customers owe you so as I mentioned before with the accrual basis you'll have transactions that have occurred but cash hasn't exchanged hands meaning for example you sold product to your customer however you have not received cash for it that's where accounts receivable comes in on the cash basis if you didn't get the money the transaction didn't happen so you're not going to see accounts receivable on the cash basis um frequently if you have a diverse enough set of business operations you can have different subdivisions of accounts receivable you'll have contributions receivable grants receivable um often I'll see accounts receivable for fee for service or program Services um it helps delineate the different types of operations that your company would have and you may also have an account that's called the allowance for doubtful accounts it's related to bad debt and if you have customers that just don't pay you and it happens on a regular basis it may be where you have an allowance for doubtful accounts if you happen to write off frequently 10 of your receivables per year the allowance will have that just sitting there ready to be used also in current assets is prepaid expenses it's paying for an item to be used later um the best example I'm always going to have is annual insurance policies if you pay for insurance for a full year you chop it up into 12 equal segments and then that's your expense per month you also have things like down payments for event venues so if you're going to have a Gala and you want to reserve for example here in Madison the Monona Terrace get a convention room if you pay up front that's where your um that's where your transaction is going to be stored and it does follow the current versus long-term rules for example those down payments you could have to reserve well in advance and then there's a couple of a handful of assorted other current assets employee advances if you give your employee basically a loan up front on their payroll accrued interest that you would get that you are meant to receive or for some companies if you have related entities you'll have due to or excuse me due from in this situation where if the related NC owes you some funds that's where it started so now we're going to switch over to long-term assets so this is the less liquid lower churn section of the assets and long term it's going to be usually big purchases Investments for longer than one year when you think big purchases um you're going to think land property and equipment and then now new for 2022 the right abuse asset some of you out there who have seen newer editions of financial statements if you're on a slightly different fiscal year there is a new standard that has been issued for how financials are meant to be presented it's called ASC 842 we commonly call it internally the least standard there's a different way that leases are being presented on financial statements and it'll be in your long-term assets so part of long term if you break it down a little further we're going to have fixed and intangible X assets you're probably most familiar with fixed to start so we're talking property plants and Equipment land but uh also for your intangible assets intellectual property and patents or rights of use to different Works uh copyright uh things like that along with that with those items you're either going to have depreciation or amortization and in that section it'll be the accumulated portions depreciation amortization is basically thinking of it as using up a big asset you're spreading out the cost that you laid out up front over the useful life of the item so if you have a truck you expect your truck to last you 10 years you're spreading the cost of that truck out over 10 years uh there's no depreciation on land um so land just sits on the books it does not get adjusted for um does not get adjusted for Market adjustments or anything like that um just sits at the purchase price and the difference between depreciation and amortization is tangibility can you touch it if you can touch it it's going to be depreciated if it's something like a patent it's not really a solid matter that's intangible it's going to be advertised so can you touch it as a rule and then most if not all organizations are going to have a capitalization policy they need to follow and it's usually a dollar value so in order for something to be placed into fixed assets for example if you buy a copier but it was only five hundred dollars it's small enough to be turned into an expense immediately but if it's over a certain dollar value and I frequently see twenty five hundred dollars at that point it becomes a fixed asset and then we talk about depreciation okay so now that we've gone through the assets it's time to talk about liabilities or what you owe to other places so just like the assets it's going to go from most liquid to least liquid um it's a little different to think of a liability what you owe as liquid but what is likely to be paid first is another way to think it we'll also have um splits into current and long term if it's presented that way but what uh additional wrinkle and complication is that you can have liabilities that are both current and long term so looking at your current uh liabilities we're going to start off with just accounts payable much like accounts receivable if you received product that you're um that was from a vendor you owe that vendor some money some cash to pay for it and that's where this is stored so it's bills to pay this is your everyday operations um one wrinkle that some people Miss is credit cards credit cards are technically accounts payable you bought something on on credit and credit card transactions do exist on the cash basis because cash technically changed hands it exchanged hands from the credit card company to the vendor and now you owe the credit card company so you will see uh credit card liabilities on cash basis reports we also have just accrued expenses um payday hasn't hit yet but employees have worked and you owe them the wages that they've earned same thing with payroll taxes your FICA uh your suit and not food and unemployment and then as mentioned before we had to do from related entity this would be where the due to related entity would be if you owe the other companies some funds and then we're going to talk about deferred revenue a little bit here so deferred revenue is money that you've received in but you haven't earned it yet so it's almost the flip side of prepaid expenses um a wrinkle here as well is it's for exchange transactions and not contributions so I'm going to take a little sidebar here and go over what that means exchange transactions are for services you are getting reciprocal benefit to who is paying you whereas a contribution is money is basically going one way and they're not expecting anything in return if there's something meant to be delivered in return that is the exchange transaction and the handling of the revenue recognition is different again don't want to get too deep in the weeds there but just remember if you see deferred revenue it's important to look for um fee for service exchange transactions and then as I mentioned before we could have the um the split between current and long term for the same item so here we have the current portions of long-term debt so this is the part of your mortgage or your loan that you're going to the principal portion that you're going to pay in the um within the year so it's anything that's going to be due within the 12-month period um also part of the leases you're going to have uh current portion of long-term leases with the new lease standard and then long-term liabilities we're thinking more than one year so the actual mortgage itself when it is initiated it's a long-term uh liability loans lines of credit things that are um basically long-term debt instruments and then the leases that are taken out if you have a lease on a building that's meant to go for five years there you go long-term liability okay so the final section of the statement of position is going to be your net assets or as we've discussed before equity um it's what's left over if you take all of your assets and then covered all of your liabilities so if you think home equity loans you're borrowing against what you've already paid on your house compared to the value of it same thing here if you paid all of your liabilities off what's left now we have two major categories here it originally was three categories uh several years ago this was reduced down to two to make things simpler first off we have with donor restriction and then second we have without donor restriction so the way to think about this is imagine you're a donor and you want your donation to go to a specific program for purpose or you want it to go to an event that's going to be held um that's going to be your with donor restriction um so if you have a capital campaign it's meant to pay for a new building um the one I always go back to with my church background that I've worked with uh the church flower fund if you have alter flowers that are purchased on a regular basis people want to buy those um that's a with donor restriction donation um and if you've heard of them think of like uh Harvard Harvard University has a very large endowment it's meant to uh be held in perpetuity and we're going to get to that a little bit but it's meant for something specific So within the with donor restrictions we have three subdivisions we have restriction with donor restriction for purpose with donor restriction for time or permanently so a donation could be a mix of all three if it's for purpose that's like the church flower fund now if you have something that's restricted for time if you're giving a large donation that you want to have used at later periods say you're giving one hundred thousand dollars and you want it to be used up over five years there's a restriction for time in there or permanently you don't want the company to be able to touch that donation ever and it sounds strange but I have an example coming up um permanent restrictions are just that they're permanent um there are caveats to that um again not going to get too deep on that but when you think permanent just keep it in mind it's permanent um permanent restricted donations are gifts that are meant to generate more funds so when we were talking about the endowment if you donate for example one hundred thousand dollars to the endowment the that can either accrue interest in the bank and the company can use that interest for programming or you donate your thousand shares of Microsoft stock it's not meant to be sold but the dividends that get issued with that on a quarterly basis can be used for operations but those also could be restricted too it just depends on the structure of the Restriction at the point of donation so um we could get deeper on that don't want to get too deep into it now but know that that's available donor restrictions are binding agreements it's basically a contract that gets set up and if your organization does not follow through on that restriction the donor has recourse to um get it back and on the flip side of that a non-profit can refuse a donation it's strange because most nonprofits want to have all the funding they can come in but if it doesn't fit your mission or fit the um the scope of what you're trying to do thanks but no thanks is okay um if you refuse it because you can't fulfill the Restriction if you're a church and there's um there's funds that are meant to go to non-religious functions or things that don't agree with the religious beliefs it's okay to say no and then something that I'm just going to touch on here the permanent permanently restricted contributions donations can go underwater so imagine when I mentioned that Microsoft stack if the price of the Microsoft stock goes down it depreciates in value because of the market you have less stock than the original contribution and that's underwater there's a special presentation for that um and whenever there's Market downturns I usually have to look up and remember how to do that all right so without donor restriction so net assets that have been earned without encumbrance um or the donor restriction that you originally had either purpose time it was fulfilled and now it's without donor restriction you earned it these net assets can be used for any activity used for operation it's your your Surplus more or less you can have internal restrictions so imagine that your board wants to set aside thirty thousand dollars to make renovations to your office that can be a motion during the board meeting taken to a vote and approved it is still without donor restriction that would be that portion that they vote on would become bordered much you know um but it's really important for boards not to over restrict um it could really hamstring what the um the employees are doing and trying to accomplish okay so if I started off at the top with some metrics things that we can think of and utilize when we're looking at these financial statements the one that is the simplest to use is Cash versus current liabilities is there enough cash in the bank to cover the bills that are going to be paid shortly and then compare the amount of debt to net assets is there a lot of debt or is the company just over leveraged when it comes to debt so much is owed to so many places but there isn't much to show for it that could be a big red flag accounts receivable versus cash that is a metric of collections are you able to turn over um your accounts receivable and convert that into cash by getting money in the door from your customers low cash and high inventory are you not able to sell now there are non-profits that do have sales um if you're constantly dealing with inventory and inventory blood um and you don't you're not selling it it's hard to get money in the door and then on the upcoming statement of activities you can combo some of the information that's on the statement of activities with the statement of position and get additional metrics all right so there was a lot of information on the statement of position as I mentioned that there is a lot that I like to look at on there a lot of um good information about that that point in time about a company but right now the this and then the following statements are going to be time ranges that apply to that point in time on the statement of position we're going to start with the statement of activities so as I mentioned off the top it's comparable to a profitable loss statement in the for-profit world it's going to show um revenues and expenses and it's going to show a range of time not a point like the statement of position it's usually a quarter or a month or a year something that applies to that statement of position as I mentioned it shows revenue and expenses and I'm going to always say this in pretty much every presentation that I make non-profits should still make a profit it doesn't mean you're never going to make a profit it's not for-profit you're not going to be dispersing those profits to shareholders or owners or anybody like that nonprofits need to have a surplus for either rainy days or expanding operations um but also important to know is that some activities can result in income tax if you've heard of the unrelated business income tax it's something to watch out for and we're going to talk about examples of that coming up so the activities on the statement of activities the things that generate the revenue and expense may be classified as with or without donor restrictions or you'll also possibly see it restricted versus unrestricted and then the same thing with the statement of activities using the accrual method and following Gap just like the statement of position and um keep that in mind when you're looking through these looking through these forms so we're going to start with the revenue section here so Revenue just like in a for-profit company what an organization earns from doing business so for non-profits you're going to see a nice variety of revenue streams contributions just donations from either regular people or corporations government what have you grants similar to that usually Grant has a an application aspect to it as opposed to a contribution which can be solicited but it has an unsolicited aspect to it Services where you have that exchange cut exchange transaction that I mentioned before a government entity can basically subcontract to your organization to provide services and they will pay you um membership dues if you have something like a chamber of commerce or an Enthusiast club or something to that effect membership dues to um to be part of the club that's Revenue and then fundraising we all think of the the big Gala party that is a fundraiser with the five thousand dollar tables and we have the um we have just the bake sales even something smaller like that all those can be classified as fundraising so you can have Revenue that is from non-mission based activities and when I'm saying non-mission based think of your mission statement that your company is designed to work under go back to my church example so a church has Services either Saturday Sunday combination of both something like that but during the rest of the week they have Prime real estate specifically a parking lot that is empty that parking lot you can make some money by leasing out the parking spaces but a church is not a parking spot company it is a church so you are competing with for-profit entities in that regard it's not part of your mission so income tax is going to come from something like that um another example would be if you have an Arts organization and you have this building where it's meant to be an art studio you have easels and pottery wheels and everything's set up you can clear all of that out and on the weekend when you're closed um and you're not giving any classes you want to know as a party room well you're not a party room company you're a art studio so that can run a file of unrelated income tax as well and then near the bottom of these classified statements of activity you're going to have net assets released from restriction it's going to net to zero you're going to see in the total section it's going to have a zero and um the canceling numbers in the two columns excuse me um you're going to take your current and prior year restricted contributions or any other restricted revenue and it's going to shift it to unrestricted um so you can often have a total revenue of a negative number in the section in this example we don't have negative they have received more contributions in the current year than has been released from restriction but it is okay if that column is below zero all right going to the expense section expenses are just uh simple as what you spend doing business you need supplies you need workers you need lots of you need to spend money to make money base now this is a section of the financials that could vary significantly between your different organizations in this example here we have lower detail but larger bucket classifications but when I say higher detail of smaller buckets we're going down to just Personnel or just office supplies just program supplies it expands on the type of expenses the reason for the ability of this is that you can get additional detail on the next statement the statement of functional expenses and shrink down the statement of activities to be a little bit more digestible there's not necessarily a right or wrong on this format I personally like having additional detail in the expense section but it can be presented in this uh downgraded condensed format in your very lowest detail you can you're going to have three big buckets program expenses manage management and general expenses also known as admin I use the term pretty uh interchangeably if I say admin I'm meaning this section and then fundraising expenses the expenses that you spend on your big Gala or something to that effect and then you don't see it often you will have the other revenue and expenses and I uh compare it to the other comprehensive income section if you've seen that a for-profit statements it's going to be things that are non-operating activities uh gains a loss on stock if you sold property and an appreciated a value from what you had in on the books investment earnings things that are not really underneath the purview of the organization Hey look it's still earnings or it's still losses and it needs to be shown but um your core business is usually Above This section okay so at uh the very bottom we have a section for the change in net assets so you take your Revenue you take out your expenses and you have a surplus or a deficit at the end of the year did you make money did you lose money um and this is this section is the reconciliation so you take your net assets at the beginning of the year you factor in your change in net assets and it gives you the amount that is on your statement of position so you'll notice here that the columns have matching numbers on the statement's position and that's how the statement of activities relates to the statement of position it flows through it takes your activities and flows through to your point in time all right so metrics on the statement of activities we have the simply the change in net assets what's your bottom line did you make money lose money um specific Revenue to total revenue if you're a membership Organization for example was your membership really good was your membership poor um are you heavily Grant based um how Diversified is your Revenue something to look at there same thing with expenses is Personnel your large expense spoiler alert it probably is and you should uh keep an eye on that or are you spending Less on personnel and more on contractors is that something that should be brought in-house something to look at there restricted versus unrestricted Revenue um if you're heavily into restricted Revenue you could be um Limited in some of the activities that can be performed because again as I mentioned earlier there is that that donor restriction is binding so having contributions or funding that is unrestricted that could be used for anything is important and then a really nice one that I like to use pretty much on every company I work with is the days or months cash on hand I really hope it's months for your company take your total cash from the very beginning of the statement of financial position divide by your total expenses in that time period how many days or months do you have I like to see you excuse me three to six months cash on hand that's a really healthy reserve some companies just do not have that luxury it can get down to less than one month and that's where I say the day's cash on hand um it just depends on the structure it could be your company is tighter in that regard and that may be okay but it's really good to have that Reserve available so we're going to move on to the statement of functional expenses here um we saw some of the activity in the statement of activities but this is where you're going to get that extra detail if you have the condensed um the condensed big buckets so to speak so this is a unique non-profit statement and you're going to be breaking down just the expense section into what is called the expenses function and its natural category and we're gonna get into that here in a second and it really breaks down where you're spending the most and how you're spending it so for these you're going to have a function acting as the column so it's going to be breaking down those the buckets the big buckets we had before the program expenses which are what you spend on fulfilling your mission the management in general which is work that's that's meant for the business but it's not necessarily programmatic it's going to be your billing it's going to be your uh when you have to fill out Grant reports if you have to cut checks anything like that that it's all stuff that needs to be done but it doesn't exactly one-to-one correlate with the program and then you have your fundraising expenses so that could be your general solicitation if you have mailers or event base if you're putting specific programming together for a Gala um Capital campaign mailers and going out and soliciting that's a perfect example of a fundraising expense so we go to function you're grouping by purpose and usually it's in the comps you can have it where it's organized differently this format that I'm showing here for this example is the most common you're going to see and then you can break out your programs and you have your individual programs laid out if you want to present it that way and then have a roll up column at the end same thing with um the fundraising events if you have multiple fundraising events in one year you're you can expand your fundraising column and show those events so now we're going to get to the Natural classifications so this is going to be your rose so the way I I have it defined is it's grouping by the economic benefit received you think to yourself what does that mean another way to think about it is it's describing what the expense is the expenses are and not what they're for another way to think about it because it's trying to Define it as kind of difficult um what would it be called anywhere else so salaries that's a common expense across the board everyone's going to know what salaries are rent everyone's going to know what rent is everyone's seen that if you have a line that says supplies for Joe whether what is that what who is Joe what does Joe do we don't know we want to make it where it's more ubiquitous you know industry standard information and like I said this is usually your rose um you can like I said you can rearrange these but this is going to be your most common format so why why the functional why are we even including something like this I know when I donate to a non-profit I like to know where my money goes and for most people out there where do you want your money to go programming you wanted to go to fulfill the mission you feel strongly about the mission and you want it to go there but I also consider the administrative costs um being that I deal with nonprofits on a regular basis there is Administrative compliance costs things like getting an audit there could be too much admin you could be just spending it on whatever and it just doesn't make an impact in the community but you can have too little admin as well and it really has a sweet spot involved um many grants have a cap on the amount of admin in general expenses you can make on the grant and if you don't have the ability to get that admin cost it's really hard to scale and expand your business because there's definitely an ebb and flow when it comes to programmatic versus admin okay metrics on statement of functional expenses is pretty standard you're going to have that comparison of the program to admin to fundraising it's a a ratio that you're going to see my very basic starting point is going to be 75 program 20 admin 5 fundraising but again your organization is going to be different it's just a starting place where I start when I'm just introduced to a uh Organization for the first time so I I did pull some information from the latest 990s of a couple of famous nonprofits so I started with the Red Cross uh Red Cross is very uh program based uh they have a 90 to three percent admin to seven percent fundraising um so very very programmatic feeding America the hunger elimination um organization there even more program based 99 programmatic that's that's very incredible um and then the ASPCA and we see their commercials frequently on TV um and their advertising reflects it where they have that 19 and then 77 is um is your programmatic and then now we get to the fun part we get to wrap it up with the statement of cash flows everyone's most favorite financial statement okay statement of cash flows just that it shows the changes in cash from sources and uses so you're going to have cash in and you're gonna have cash out this report really helps reconcile between the cash basis and the accrual basis it shows you your changes in your statement of financial position accounts and how they affect cash and it can be incredibly useful for companies that their operations seem to be a little bit more difficult to understand there's two different versions there's the direct and indirect method of creating this report the direct only utilizes the cash transactions the indirect starts with net income and adjusts for not in cash transactions and changes on the statement of position I don't want to really have to go back and forth between these two so I'm going to be focusing on the indirect method today it's the most widely used um out there in the wild so to speak so let's focus on the one that's used the most so with the indirect method we're going to have the changes of the cast broken down into three types operating investing and financing activities so starting with operating activities with the indirect method you start with the change in net assets we saw that on the statement of activities earlier so we're going to be taking that number straight from there immediately after that we're going to have a Reconciliation so we're going to take non-cash transactions um and in my example that I have here some of the transactions that are listed are depreciation deferred income tax realize gains and losses they're not necessarily um they're important they affect change in net assets but they don't affect cash and that's something that has to be basically pulled out backed out of that change in net assets so we have the cash portion of the change in net assets and then after those are pulled out in the operating section we're just going to have the changes in operating assets and liabilities so your accounts receivable your accounts payable your prepaids all those things that we stock on the um statement of financial position we're going to be factoring in here so our change in net assets for operating we have that reconciliation of most commonly non-cash transactions so things like appreciation gain loss deferred income tax if you have the unrelated business income tax we really need to back out those um we need to back those out to get that cash affecting portion of the activities and then our changes in operating assets and liabilities receivables prepaids inventory Etc so kind of a global look at operating activities the cash in and out changes here can be confusing and these four points will help you when you're looking at a statement of cash flows if the asset goes up it's an outflow of cash the assets go down it's an inflow of cash and then it's the reverse reliabilities liabilities go up it's inflow reliabilities go down it's an outflow well okay that's still pretty confusing some so I broke it down a little further if you have more assets your assets increased your cash payments went out you bought some things you bought prepay insurance or you gave out services but you haven't been paid for them yet you paid people to perform those Services that's cash out and then more liabilities means you didn't pay a cash yet so you bought supplies but it was on your credit card you didn't pay for them yet um that's money that you still hold it's an inflow or you haven't paid your employees yet because it's not payday but they've earned their wages you still owe that money that's still an inflow um that's that's going to be your linchpin that's going to be probably the hardest part of this statement is understanding how cash is affected by operation or the operating assets and liabilities less frequently you're going to see investing activities so your purchases of Investments but more frequently you're going to say see the purchases of fixed assets but not the gain and loss we're talking you purchased a building purchased land purchased Vehicles those big things we were talking about could even be a business acquisition in there if um if companies merged um you're unlikely to see that very often for the nonprofit side you're going to certainly see it more on the for-profit side but just as an example and then for financing activities it really has much to do with taking out and paying back loans when you're getting those mortgages you're paying back the mortgage notes lines of credit that's financing activities so what would happen to cash did you buy something did you sell something how does that affect cash think about what action you're performing and if it was strictly a cash Transaction what would happen if you took out a loan uh that's money in if you're paying a loan back you're sending it back out again if you're purchasing supplies uh if you're purchasing supplies that's money out think about how cash should be affected if it's a cash transaction and at the very end of the statement once you get your operating investing and financing activities you're going to have a reconciliation with the beginning of the year cash all the changes that came from the three buckets and then those two items sub together should give you your end of your cash and you will have some supplemental information here at the bottom it really depends on the situation of your organization to determine if that's necessary so the metrics through the statement of cash flows obviously the most basic one is ending cash um did it go up why did it go up you really want to see if the cache was generated through operating activities so if you're just burning cash left and right because you know you have way too many employees or you're just not generating any sort of positive activities that's just a big red flag for any organization you're going to run out of cash or if you're over leveraged on debt things um where you're just sending money out the door even just for principal repayments and you're having a hard time covering those that's obviously another red flag so we've made it through the four statements we're going to just take a little step back and do a review here so as I mentioned before the statement of financial position is that point in time whereas the remainder of the financial statements are going to be some sort of equivalent time period that includes that point of time the accounts on all the statements are grouped by type or time period or omitted entirely because as I mentioned before accounts receivable accounts payable those may not be on there if you're using the cash basis and then as we saw before there are multiple metrics on each of the financial statements that you can use to get a little more in depth with the financial information that's being presented we have reached the end it is 157 perfect amount of time so um now I'm going to take a look at the Q a here and let me just move on to there turn on my laser pointer so I'm not pausing okay and I have our questions and answers here uh from Jeannie Hansen should software purchases be reported as intellectual property uh good question the software um let me back up that it depends first on um if it's a big purchaser or not if it's a big purchase odds are you're going to be depreciating it it's not going to be intellectual property because you're not owning the rights to it you're licensing it and [Applause] that's one I would have to double check on because in you could you could manage to say that there is a tangible element to software because it goes on to a computer which gets you can touch I'd have to double check on that one Uh Kevin edberg how and when should donor restrictions be documented that is an excellent question um donor restrictions should be acknowledged at the immediate time of donation so if you're following the IRS rules you're going to be sending out those donor letters that's a perfect time to say that you said your donation was for XYZ program and that's out there frequently if your accounting software doesn't have a specific module to track those you can track those in an Excel document um as long as you are fulfilling those obligations at some point if there's a Time term on there or it's just um over the course of a program just making sure that you build those things and you're good to go and then the final question here from Anna what software do you recommend um depends on what software you're asking about internally we'll use either QuickBooks or Sage intact intact is much more robust when it comes to non-profit reporting and the ability to track projects and restricted funds um but you can I I would say once your company scales to a large enough um size you're going to want a more robust software and then as Krista mentioned earlier the slides are going to be shared I'm going to be sending them over to her uh here in a little bit and um Kristen will also have the recording but I know um either later today or sometime this week the recording of This webinar will be on the YouTube page for wigner CPAs so keep an eye out there so Kristen I think that wraps up for me all right great thank you James for sharing your expertise today and thank you everybody for joining us we hope you found this information helpful as James said I'll be sending on email with a link to the recording and the slide deck so you get all that from me a little bit later today or tomorrow um just a reminder that we have some great trainings coming up for non-profits understanding the IRS form 990 for executives is coming up next Wednesday and we have a QuickBooks users group for nonprofits on March 29th among many other offerings and all of that information is available on our website at wagnercpas.com under upcoming events thanks again everybody we hope to see you all again very soon have a great day bye everybody