Touring The Financial Report, Part Ii

statement of activities

The columns provide current period, last year and budget comparisons and variances. The year-to-date columns can also be expanded to see the individual months that make up the YTD amounts. The Statement of Cash Flows shows the inflows and outflows of cash throughout the time period reported, and consists of operating, investing, and financing activities. Nonprofit organizations have the unique opportunity to report their Statement of Cash Flows using either the direct or indirect method.

statement of activities

No accounting software, particularly ones in the price range of most small and midsize nonprofits, can produce a “canned” report with as much context and analysis as the above. Therefore this report is formatted in a spreadsheet and raw data are taken from the accounting software and inserted or linked into the preformatted report. The preformatted report takes some time to set up at the beginning of each fiscal year, but afterwards the majority of management time is spent in updating the year-end forecast. Some organizations find it more useful for internal purposes to record revenue that has been released from restriction in its natural income category. The release shows as a negative number on the “Released to Unrestricted” line and is added as a positive number within the natural income category, for instance foundations or government grants. For investors, the CFS reflects a company’s financial health, since typically the more cash that’s available for business operations, the better. Sometimes, a negative cash flow results from a company’s growth strategy in the form of expanding its operations.

What Is Included In Cash And Cash Equivalents?

The Schedule 09, Schedule of Liabilities, includes a new validation check for net pension liabilities. Governments will receive a red flag if they have pension related liabilities but do not report them on the Schedule 09 or if they are using the incorrect ID No.

The indirect method uses changes in balance sheet accounts to modify the operating section of the cash flow statement from the accrual method to the cash method. It is useful to see the impact and relationship that accounts on the balance sheet have to the net income on the income statement, and it can provide a better understanding of the financial statements as a whole. Most companies use the accrual basis accounting method, where revenue is recognized when it is earned rather than when it is received. This causes a disconnect between net income and actual cash flow because not all transactions in net income on the income statement involve actual cash items. Therefore, certain items must be reevaluated when calculating cash flow from operations.

If there is an amount that is still owed, then any differences will have to be added to net earnings. On the other hand, an increase in inventory signals that a company has spent more money to purchase more raw materials. If the inventory was paid with cash, then the increase in the value of inventory is deducted from net earnings.

Instead the amounts show as a release of restriction with the qualifying expenses showing as a change in net assets without donor restrictions. Expenses may be shown by nature or by function or both in the Statement of Activities.

Cornell Financial Guide

For example, salaries and benefits expense may be based on estimated time and effort spent in each category, while rent expense may be based on square footage used. There is no one required way to allocate costs, but typically time and effort estimates are the most readily available and can be used to estimate allocations for multiple expenses.

For example, the public works function for this illustrative government had expenses of about $10.1 million, charges for services of $850,000, and over $2.2 million in capital grants and contributions. Public works expenses exceeded program revenues by $7,029,313, which can be seen in the governmental activities column under the “Net Revenue and Changes in Net Assets” section. The water and sewer functions in Figure 1 both were net contributors to the government’s resources, with program revenues that exceeded expenses by $1,675,944 and $2,746,658, respectively. The statement of activities accomplishes the tasks of more recognizable income statements—revenues, expenses, and other changes in net assets are presented, allowing the reader to see how net assets changed during the year.

How Do Net Income And Operating Cash Flow Differ?

Any board designated amounts or endowments would be classified as without donor restriction since the board is able to change those designations at any time. Code Special Revenue Funds – should unearned revenue be used to account for and report the proceeds of specific revenue sources that are restricted or committed to expenditure for specific purposes other than debt service or capital projects.

  • Of all the financial statements, the statement of activities is among the most useful to an NFP’s managers and constituents.
  • The FASB117 requires that the statement be divided into functional categories determined by the government that is preparing the document.
  • Code Fiduciary Funds – should be used to account for assets, including capital assets , held by a government in a trustee capacity or as a custodian for individuals, private organizations, other governmental units, and/or other funds.
  • Working capital budget – Combines flexible and fixed budget elements in one document for enterprise and internal service funds.
  • Code Special Revenue Funds – should be used to account for and report the proceeds of specific revenue sources that are restricted or committed to expenditure for specific purposes other than debt service or capital projects.
  • There is no one required way to allocate costs, but typically time and effort estimates are the most readily available and can be used to estimate allocations for multiple expenses.
  • The expenditure or expense accounts are presented in the export without object codes.

There may also be expenses that are direct program, general and administrative, or fundraising expenses and those should be reported as such. Of all the financial statements, the statement of activities is among the most useful to an NFP’s managers and constituents. The statement of activities reports revenues, gains, expenses, and losses for the period. It is a useful tool in assessing an NFP’s service efforts and its ability to continue to provide services to sustainably carry out its mission.

Statement Of Functional Expense

Many nonprofit board members and employees come from a for-profit, corporate background. While this may lay the groundwork for reviewing and understanding financial unearned revenue statements and tax returns, nonprofit organizations have unique accounting and reporting nuances that can make the transition more complicated than expected.

  • Non-cash items show up in the changes to a company’s assets and liabilities on the balance sheet from one period to the next.
  • Examples of such expenses include search firms, technology companies, independent consultants, caterers, performers, etc.
  • These include investment trust funds, pension trust funds, private-purpose trust funds, and custodial funds.
  • Poor cash flow is sometimes the result of a company’s decision to expand its business at a certain point in time, which would be a good thing for the future.
  • It’s important to note that the CFS is distinct from the income statement and the balance sheet because it does not include the amount of future incoming and outgoing cash that has been recorded as revenues and expenses.
  • Revision reflect the clarification for reporting federal grants provided by federal agencies.

As we have already discussed, the CFS is derived from the income statement and the balance sheet. Net earnings from the income statement are the figure from which the information on the CFS is deduced. To fulfill Cornell’s primary missions, operating expenses consist primarily of salary and benefits and maintenance costs for facilities and services. This amount represents the transfers of funds from temporarily restricted net assets to unrestricted net assets resulting from the satisfaction of donor-imposed stipulations concerning timing or purpose.

Operating budget – Presents the estimated expenditures and available resources necessary to provide the services for which the government was created. An operating budget will contain flexible budgets and fixed budgets; the fixed budgets will include annual/biennial appropriations for services and the annual/biennial portion of continuing appropriations for debt service and for service projects. Flexible budgets – Are usually regarded as managerial tools, which do not set a ceiling on expenses or expenditures but establish a plan for them at various levels of service.

Cpa Financial Accounting And Reporting Far : Statement Of Activities

Each category has its own line on the report with its corresponding revenue and expense. This is a quick reference to see how much money has been spent or how much money is left over. The change in net assets is essentially the net profit on income statements as used by corporations.

  • Continuing appropriation – A fixed budget which authorizes expenditures for a fiscal period that differs from the government’s fiscal year, such as capital projects, debt issues, grant awards, and other service projects.
  • The government-wide statements organize information by whether it relates to governmental activities or business-type activities.
  • These accounts are still optional for GAAP governments.The change applicable to the courts’ deposits and remittances was updated on March 14, 2017.
  • However, if there is a pricing policy to recover the cost of issuing those individual building permits, they should be reported in an enterprise fund.
  • Net assets with donor restriction are restricted by the donor to be used only for a specific purpose or during a future period.
  • The government-wide statement of net position and statement of activities should be prepared using the economic resources measurement focus and the accrual basis of accounting.
  • In a non-profit organization, the statement of activities is used in lieu of an income statement.

The statement of cash flows, or the cash flow statement , is a financial statement that summarizes the amount of cash and cash equivalents entering and leaving a company. Like the income statement, it also measures the performance of a company over a period of time. However, it differs because it is not as easily manipulated by the timing of non-cash transactions.

Changes In Net Assets

State appropriations for capital acquisitions represents New York State’s appropriations for SUNY construction funding for capital projects on contract college buildings. This amount includes the costs of maintaining and operating the university’s physical plant. Costs necessary to maintain the university’s daily operations and administer its business. Examples of such expense include office supplies, laboratory supplies, communication, travel, insurance, etc. Operating expenses are costs incurred in fulfilling the Cornell’s primary mission of “learning, discovery, and engagement.”

Which of the following is an example of financing activity?

Definition of Financing Activities

Borrowing and repaying short-term loans. Borrowing and repaying long-term loans and other long-term liabilities. Issuing or reacquiring its own shares of common and preferred stock. Paying cash dividends on its capital stock.

Transactions or other events that are either unusual or infrequent but not within control of management should be disclosed in the notes to financial statements. The government-wide statement of net position and statement of activities should be prepared using the economic resources measurement focus and the accrual basis of accounting. Revenues, expenses, gains, losses, assets, and liabilities resulting from exchange and exchange-like transactions should be recognized when the exchange takes place. Revenues, expenses, assets, and liabilities resulting from nonexchange transactions should be recognized in accordance with the GASB Statements 24 and 33.

Local Government

They may use the calculation below to determine whether an activity would qualify for reporting as a special revenue fund. Identify the effect of donor-imposed restrictions on the reporting of revenues in the statement of activities. Particularly for income and expenses, it is important to have the accounting line items in your accounting software match the line items in your budget template. Misalignment between budget and accounting line items necessitates tedious regrouping of numbers for budget comparison reports and can lead to over-spending of accounting line items not represented in the budgeting process. The year-to-date total from the accounting software is provided as well as a calculation of the percent of the budget represented by the year-to-date totals.

  • When it comes to bookkeeping for non-profits, many of the processes remain the same as in the for-profit world; however, differences in terminology will apply when managing a charitable organization’s books.
  • This is a quick reference to see how much money has been spent or how much money is left over.
  • Statement of activities reports are considered highly important financial statements and are used by executives and accountants to perform monthly financial analysis.
  • It is a useful tool in assessing an NFP’s service efforts and its ability to continue to provide services to sustainably carry out its mission.
  • Conversely, a statement of activities with natural classification would only list the expense types, such as salaries, utilities, office supplies, etc.

The Statement of Financial Position includes assets, liabilities, and net assets. There is no requirement for nonprofits to show current assets or current liabilities so typically those are not identified. Net assets include amounts without donor restrictions and with donor restrictions. These classifications are somewhat self-explanatory in that net assets without donor restrictions means that the entity may use those net assets for any program or administrative costs, and they may be used at any time. Net assets with donor restriction are restricted by the donor to be used only for a specific purpose or during a future period. Net assets with donor restrictions would also include amounts to be held in perpetuity as required by the donor.

Net Assets Released For Capital Acquisitions And Reclassification

Andrew has served as the chair of the Washington Society of CPA’s Not-for-Profit Committee and co-chair of the WSCPA Not-for-Profit Conference. He is a frequent speaker at conferences, seminars, and webcasts for the AICPA, state CPA societies, and industry groups.

The majority of sponsored funding for research and mission-related activities comes from the federal Department of Health and Human Services, the National Science Foundation, and non-federal foundations. State appropriations are funds distributed through the State University of New York . Page 5 includes other IRS compliance considerations and will alert the IRS to other forms that may be required to be filed such as 1099s or W-2s. This is the first opportunity for the Organization to tell its story to those reading it. As the Form 990 is available for public inspection it is important for the 990 to be used as a marketing tool for the Organization rather than just a required form to be filed each year. The account 588, Prior Period Adjustments was changed to and account 58850, Cumulative Effect of Change in Accounting Principle was added.

The upper right-hand portion of the statement of activities reveals the degree to which the functions and programs presented are self-financing. These statements are significant because they bring together information that previously had been spread among various funds and reported on different accounting bases.

Nonprofits and associations use Statement of Activities Reports to give executives and department heads an easy to read monthly financial review. Let’s go over three aspects of government accounting that are a good indication of the areas where the government has to cut spending, or start to take in more money for a growing program. MIP Fund Accounting® is part of Community Brands, the leading provider of cloud-based software to associations, nonprofits, faith-based groups, and K-12 schools. Organizations adopt Community Brands solutions to manage memberships, career centers, learning, accounting, fundraising, donations, admissions, enrollment and events. The receipt of the check will increase unrestricted net assets by $30K and the payment to the doctor would use and therefore decrease unrestricted net assets.

The indirect method begins with net income or loss from the income statement, then modifies the figure using balance sheet account increases and decreases, to compute implicit cash inflows and outflows. Therefore, analyzing changes in cash flow from one period to the next gives the investor a better idea of how the company is performing, and whether a company may be on the brink of bankruptcy or success. The CFS should also be considered in unison with the other two financial statements. All other 518 codes not listed above – Allowed in all governmental funds or internal service funds. Transfers should be classified separately from revenues and expenditures or expenses in the basic financial statements. Continuing appropriation – A fixed budget which authorizes expenditures for a fiscal period that differs from the government’s fiscal year, such as capital projects, debt issues, grant awards, and other service projects.

Added reporting requirements of GASBS 88, Certain Disclosures Related to Debt, Including Direct Borrowings and Direct Placements. This Statement is applicable for reporting periods beginning after June 15, 2018. The most significant change involves changes in financial reporting and these are incorporated into 4.3.5, Fiduciary Funds Financial Statements. A new section was added to discuss and clarify concepts related to accounting and reporting of contingencies and litigations. GASB Statement 84, Fiduciary Activities – the Statement is effective for reporting periods beginning after December 15, 2018; however we incorporated the required changes in this version of manual.

statement of activities

Other changes in net assets that are required to be shown separately are contributions to term and permanent endowments and permanent fund principal, special items, and extraordinary items. With theindirect method, cash flow is calculated by adjusting net income by adding or subtracting differences resulting from non-cash transactions.

Statement Of Activities For A Nonprofit Organization

Expenditures should be classified by fund, function , organization unit, activity, character, and principal classes of objects. Transfers should be reported in the accounting period in which the interfund receivable and payable arise. Governments should establish and maintain those funds required by law and sound financial administration. Only the minimum number of funds consistent with legal and operating requirements should be established. Using numerous funds results in inflexibility, undue complexity and inefficient financial administration.

statement of activities

The reporting entity is the primary government and all discretely presented component units. Financial statements for governmental funds should be presented using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues should be recognized in the accounting period in which they become available and measurable. Expenditures should be recognized in the accounting period in which the fund liability is incurred, if measurable, except for unmatured interest on general long-term liabilities, which should be recognized when due. The government-wide statements bring the financial activity together in one place and report accrual-based economic resources information. The government-wide statements organize information by whether it relates to governmental activities or business-type activities.

In addition to the trust criteria requirements above, all individual investment accounts are required to be reported in an Investment Trust Fund. Other resources (investment earnings and transfers from other funds, etc.) also may be reported in the fund if these resources are restricted, committed, or assigned to the specific purpose of the fund. Above and Prescribed option includes those accounts which are aggregates of detailed account codes and are not valid for reporting in addition to Prescribed accounts which are the valid BARS account codes. The FASB117 requires that the statement be divided into functional categories determined by the government that is preparing the document. Some categories can be maintenance, salaries, schools, road repair, snow removal, and so on.

statement of activities

Appropriated budgets are required by statute in cities (Chapter 35.32A RCW, Chapter 35.33 RCW and Chapter 35A.33 RCW), counties (Chapter 36.40 RCW), and most other local governments in Washington State. These budgets are also called legal budgets, adopted budgets, or formal budgets. Lastly, the statement of functional expenses is a matrix that reports expenses by their function and type. The Financial Accounting Standards Board has a publication called the FASB117 that states how a statement of functional expense should be prepared for state and local governments. A nonprofit statement of activities with functional expenses will list all the programs under the expense section. Expenses might include salaries, office supplies, utilities, and other costs for each program.

Cash From Investing Activities

Fixed budgets must be adopted by ordinance or resolution, either for the government’s fiscal period or at the outset of a service project, debt issue, grant award, or capital project. This government type selection will limit the accounts to those applicable to the selected government type. Although the listing provided intends to be all inclusive, it is possible that needed account codes will not be included. If this occurs, please use the All option to view the entire chart of accounts and contact so the listing can be updated. The statement of functional expenses is a matrix, because it reports expenses by their function as well as the type of expense.

How do you find investing activities?

Calculating the cash flow from investing activities is simple. Add up any money received from the sale of assets, paying back loans or the sale of stocks and bonds. Subtract money paid out to buy assets, make loans or buy stocks and bonds. The total is the figure that gets reported on your cash flow statement.

Special revenue funds should not be used to account for resources held in trust for individuals, private organizations, or other governments. Although a local government has to report only one general fund in its external financial reports, the government can have multiple general subfunds for its internal managerial purposes. These managerial subfunds have to be combined into one general fund for external financial reporting.

State Appropriations For Capital Acquisitions

Committed revenues are resources with limitations imposed by the highest level of the government, and where the limitations can be removed only by a similar action of the same governing body. Revenues do not include other financing sources (long-term debt, transfers, etc.). The general revenues are followed by other items that also cause net assets to rise and fall. Transfers of resources between the governmental and business-type activities and the discretely presented component units will be shown on their own line.

Expenses shown by nature present how the money was spent (salaries, rent, professional fees, etc.). Expenses shown by function present whether the money was spent towards program, administrative, or fundraising expenses. Interest expenses in the enterprise fund financial statements should be reported as direct expenses for those functions. A clear distinction should be made between fund long-term liabilities and general long-term liabilities.

The definition of statement of activities is a report that shows revenue and expenses of a nonprofit entity for a reporting period. In the world of nonprofit accounting, there are several nonprofit financial statements that organizations should master. This report is similar to a statement of revenue and expenses in the for-profit world.

Author: Christopher T Kosty

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