Non-profit Accounting – Statement of Financial Position

Non-profit Accounting - Statement of Financial Position

From youth organizations to churches to local chamber of commerce, various nonprofit organizations help in making our societies better. Unlike the profit-oriented businesses whose primary objective is to generate profits for their owners, the nonprofit organizations exist to offer solutions to the societies’ needs. The main sources of finances for such organizations include membership fees, fundraising events, funds from contributions, public and private grants, and more.

For such a business, you can’t ignore the accounting function. The management needs to know the financial position of the organization, how cash is being managed, and more. For this reason, it is important to prepare the statement of financial position for the organization, probably by leveraging on the accounting services in Singapore.

Statement of financial position

The statement of financial position reveals the organization’s liabilities and assets in the order of when a liability will be paid, and assets turn into cash. You should record the amount of each asset or liability as of the date shown in the statement of financial position.

Net assets

Instead of having owner’s equity as it is the case with a balance sheet, the statement of financial position has net assets section. The statement of the financial position can be represented by the equation shown below.

Assets = Liabilities + Net Assets

Since double-entry bookkeeping requirements must be adhered to during accounting, the nonprofit organization’s statement of financial position and the accounting equation must always remain in balance.

For example, if the organization receives S$5,000 donation, the effect of this contribution to the organization’s accounting equation will be:

Assets = Liabilities + Net Assets

+S$5,000 = S$0 + S$5,000

You should report all the activities that result in a change in the organization’s net assets on the statement of activities. The statement of activities is the same as the income statement for the profit-oriented businesses.

In a non-profit organization’s statement of financial position, the net assets section reports totals for each of the classifications discussed below.

Unrestricted net assets: These are the donations and other forms of revenue that the non-profit organization receives but the donors haven’t specified a restriction on their donations.

Temporary restricted net assets: these are the contributions that have donor-imposed restriction apart from being held in perpetuity. An example of such assets is where a donor gives S$3000 and specifies that the organization should use that cash to purchase an urgently needed bus for the organization’s programs.

Permanently restricted net assets: these are donations where the donors have specified that the organization must hold the contribution in perpetuity: should not be used up.

A non-profit organization must prepare the financial statements to determine their financial health. Watch out for our next post on the preparation of the statement of activities.