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[Music] your part-time controller dedicated to helping nonprofit organizations with all of their accounting needs more information is available at your parttime controller.com hello I'm Eric Frank president and founder of your part-time controller in this video we're going to be talking about financial reports of nonprofit organizations and what makes them different or unique than financial reports for for-profit organizations well it's helpful to have an example set of financial report so I've chosen the audit for Phil abundance an organization that our firm has worked with for many years it's a wonderful organization I encourage you to check out their website Google them and uh make a donation it's a very worthwhile organization these finan reports are available on their website so if you'd like to get a full copy for yourself check out their website now I just plan to show what makes a nonprofit set of financial reports different or unique so I'm not going to talk about everything on here just those things that you'll see on these uh Financial reports that you don't typically see in a for-profit environment so let's get started right off the bat up at the top we see statement of financial position that is the common name used in the nonprofit profit world for the balance sheet moving on down the next unique item is the line that says grants receivable and just below it pledges receivable you won't see these on a for-profit financial report but uh this is where somebody has uh made a promise to a nonprofit to give money in the future uh a grant is typically something that you might see from a corporation or a found and a pledge is more typically promises to pay in the future coming from Individual donors moving a little bit further down we see pledges receivable less the current portion uh we've got a classified balance sheet here where we have current assets up above and non-current assets down below well when we have a pledge that's going to be paid over more than one year we divide that pledge up into a current and non-current Portion so that's what you're seeing here the uh current portion up included in the current assets and the non-current portion shown just below that next we have a lineer here that says restricted cash equivalence this is an example of something that you'll only see in a nonprofit environment and here what they're showing is how much of the cash and in this case the cash from uh the previous year 2010 how much of that cash was restricted below that beneficial interest well a Phil abundance uh happens to have uh some money uh in a community found foundation in this case the Philadelphia Foundation an organization that's near and dear to my heart since I was on their board the Philadelphia foundation's board for N9 years and treasurer for oh about six of those years but uh you won't tell typically see a beneficial interest shown on a for-profit set of financial reports by the way I'm not spending uh time really going into detail about what some of these things mean my goal for this video is just to point out those things that are unique all right scrolling down a little bit further let's take a look at the next part of our balance sheet the only item that I would like to draw attention to is the section that says net assets you won't see this in a for-profit environment but this is basically uh what would be the equity section of the balance sheet it's the nonprofits version of the equity section and very interestingly you should notice that the net asset sections got three parts here unrestricted temporarily restricted and permanently restricted now not all nonprofits will have all three of these categories but uh this is uh a uh good example of the different types of restrictions money in the nonprofit world can be either temporarily restricted or permanently restricted and the rest of the money is unrestricted again I'm not going to go into details about what this all means uh but that is uh a very prominent feature of the balance sheet of a nonprofit organization all right let's move ahead now to what would typically be the income statement of a for-profit financial reports and here notice that it's called the statement of activities that's the nonprofit terminology well take a look at the columns unrestricted temporarily restricted and permanently restricted so these are the categories of net assets that we just saw on the balance sheet this is a very common way of presenting this information on the statement of activities in a column or format there's other formats that are acceptable but this is a uh a very common format one thing I do want to show is as we scroll down I want to show you the totals for each of these columns so I'm going to just move us down to the to the bottom take a look at the total in the unrestricted column you'll see that the net assets at the end of the year are 8,552 477 well let's go back to the balance sheet and all right there's that number 8552 477 8,5 52477 take a look at the temporarily restricted number the million 088 305 and below that 384,000 so let's continue on and look at some of the different line items well right off the bat we see inine donations and in this case Phil abundance has in-kind food in-kind goods and inine services this is where people are donating things to a nonprofit uh in forms other than cash which is very common now of course philabundance being a uh I'll use the term a food rescue organization but really what they do their mission is quite a bit more than that uh but uh their website does a very good job of explaining all that so I'll let you look at that on your own but they get food donations and in-kind goods in-kind services and uh they do a nice job of making this all very clear on their statement of activities below that we see grants and contributions grants and contributions again being amounts that people are people foundations corporations and and possibly even governments are contributing to the nonprofit notice that the grants and contributions are broken up across all three columns so some of the money that was uh donated was unrestricted and in this case 7 A5 million but there was about a million five million6 that was temporarily restricted and about $1,200 that was permanently restricted that's where the donor says uh I am placing some type of permanent restriction on this money moving up further down we see net assets release from restrictions now this is a very uh key item on a statement of activities uh in a nonprofit organization notice that the amount we have a positive number in the unrestricted column a negative amount and the temporary restricted column notice the two amounts are are equal and therefore net across to zero uh what this shows is during the year uh $2 million in this case uh $2 million had the restrictions uh expire or the restrictions were met so if it was a purpose restriction the purpose was met or if it was a time restriction the time period uh expired and the money moved from being temporarily restricted to unrestricted Ed so much more we can say about this but just wanted to point out to you those things that are unique okay let's move further down and take a look at the expenses we have three categories of expenses and these are these three categories program Services management in general and fundraising are mandated categories of expenses by the accounting rules these mandated categories are referred to as functional expenses so these are the three broad functions of a nonprofit nonprofits of course are designed to deliver programs of one sort or another management in general is intended to show uh that portion of overhead costs that are needed in order to support the program services or the program mission of the organization and fundraising costs represent the amount of money spent during the year in order to raise money now Phil abundance has this very interesting section called nonoperating activities uh this is not a common way of portraying data but I believe that it is a very good way of portraying information uh it gives uh additional information to the reader about the nonoperating activities of the organization and in this video I don't intend to say much more about this but uh you can take a look at the line items there for yourself and it gives a very good additional information about what's going on uh at the organization during the year all right uh the last section on the statement of activities shows the change in net asset so uh this is equivalent to the net income line on a for-profits financial report and we can see the change in NB assets for each of our three types of restrictions on restricted temporarily restricted permanently restricted we show the net assets then at the beginning of the year and the net assets at the end of the year and we've already looked at how these net assets tie out or agree to our balance sheet our statement of financial position moving ahead we come to something called the statement of functional expenses let me get that all here in the screen hopefully I've got that all on the screen now statement of functional expenses and remember previously we saw in the statement of activities program Services management in general and fundraising well now we have all of the detail so moving back up we saw that program Services were 30 4.2 million management in general 1,5 fundraising 2 million well wouldn't it be nice to know what comprises those numbers well here you have all of that information we see down below the 34 uh2 million of program service costs the 1 and A5 million of management in general and the 2 million of fund raising expenses and we have all of the detail from payroll down to contract labor depreciation and so on and so forth we have a lot more information about the functional expenses of what it cost the organization to operate during the course of the year so very uh helpful statement this statement by the way of showing all this detail is actually not a required disclosure the only thing that's required is is for the organization to show the totals for each of these three functional areas but it's very common most nonprofits do include a statement of functional expenses moving ahead to the footnotes we're just going to highlight uh those things that are uh interesting and uh unique for a nonprofit organization and we can see in the summary of significant accounting policies that uh they talk about in the basis of presentation there's a little explanation about unrestricted temporarily restricted and permanently restricted net assets and I'm not going to read these uh if you'd like to pause the video to read what this says you're welcome to do so and again as I mentioned earlier this entire set of financial reports is available to download on the Phil abundance website skipping ahead to Noe four we have a footnote about play is receivable and this footnote is continued on to the next page and there's some information about pledges receivable uh not something you'll see on a for-profit set of financial reports remember we talked about that beneficial interest a few moments ago here's a footnote explaining what that means and giving some additional information about it temporarily restrict that assets we have that 1,088 there as the total and to see what that relates to Let's uh uh go back and take another look at our balance sheet so we're looking for temporarily restricting Deb assets of a million 088 all right I've just clicked ahead to the balance sheet and uh let me scroll down and there it is right there temporally restricted a million 08835 is very typical for us to see a footnote that shows that uh what the components are so we can see that there are some restrictions due to time and there are other restrictions due to purpose and and the footnote here for Phil abundance explains what the various purposes are that that money was given to well just below that in this case happens to be a footnote for the endowment we typically see an endowment on a for-profit set of financial reports but endowments are uh very common in the nonprofit world and uh this is where a donor might want to uh give money and uh might want to permanently restrict how the uh or might want to permanently restrict what happens to the principal with the intention that the income will be used to support the organization so there I have a footnote that uh has some additional explanation about all of that that footnote in this case happens to continue on to the next page all right well those were uh some of the features that make a set of financial reports for a nonprofit organization uh different or unique uh than financial reports in the for-profit world hope this was helpful thank you very much