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Blog > Reading Financial Statements, Part 2

Reading Financial Statements, Part 2

affiché le 19 juin 2019

By Maria Lahiffe

A while ago we taught you that if you can read a nutrition label, you can read a financial statement. Not only can you do it, you have to. Never, ever forget that all board members, under the law, can be held liable if there is a mistake in your organizational accounting. Ignorance is not an excuse.

Read our last post to learn about the basic Accounting Equation and some quick calculations you can do to assess the health of your organization, based on the Statement of Financial Position (SFP). In this post, we’ll look at some other things you can glean from the SFP.

Remember that the SFP is based on the basic Accounting Equation:

Assets = Liabilities + Net Assets

Read our last post for an explanation of what these words mean.

Here is a simplified SFP. Yours will probably have more line items and the numbers will be different, but the basic idea is the same.







$ 156,342


Accounts Receivable (see Note 1)

$ 15,653


Prepaid expenses

$ 11,864

Tangible Capital Assets (See Note 2)

$ 6,589



Liabilities and Net Assets




Accounts Payable

$ 10,657


Deferred Revenue

$ 6.231





Net Assets



Unrestricted Operating Fund

$ 95,971


Internally restricted (Equipment fund)

$ 11,496


Externally restricted (XYZ Program fund)

$ 66,093


$ 190,448


Note 1

Accounts Receivable aged as follows


$ 7,654

>30 days

$ 3,002

>60 days

$ 4,358

>90 days

$ 639


$ 15,653


Note 2

Tangible Capital Assets



Accumulated Depreciation

Computer equipment



Furniture & Fixtures



Machinery & Equipment






Net Carrying Amount



1. Assets > Liabilities = Good!

The first thing to look for is the relationship between your total assets and total liabilities. In the case of the sample numbers, the total assets are $190,448 and the total liabilities are $16,888. The assets are much greater than the liabilities, which is a good thing!

2. Unrestricted Operating Fund

This is the amount of net assets which are used to fund day-to-day operations of your organization. If this fund dips below zero, then that means your organization is accumulating debt.

Remember you have two other types of net assets: (1) internally and (2) externally restricted operating funds. Internally restricted operating funds are usually funds which are being used to save up for a future expense, like a large purchase. Externally restricted operating funds are typically restricted because the funds have been granted or donated for a specific purpose, such as a particular project which is upcoming.

If your unrestricted operating fund is below zero, then look very carefully at your programs. Is there a program which has particularly high expenses? Is it core to your mission? If not, then you may need to cut that program. Is there a grant which has been promised but is delayed in arriving? If so, then you can probably carry the debt for a little while.

In our example above, the unrestricted operating fund is almost $100,000. This is a healthy proportion of the total assets (over half of $190,448). This organization has plenty of funding for its operations.

3. Accounts Receivable

Accounts receivable (A/R) is money which is owed to your organization. You have provided a service or sold a product, and have not yet received payment. Generally speaking, a low A/R is desirable, but it may depend on your clients. What is more telling is the age of the A/R, i.e. how long the money has been owing. It is also important to understand what is normal in your sector.

In the sample financial statement above, quite a chunk of the A/R is older than one month. This is worth asking about, to find out why. It may be normal in your sector, but you should check.

4. Asset Depreciation

Look at the depreciation on your assets. This will give you a sense of how much more useful life you can expect from them. In the example above, the amount of depreciation on furniture and fixtures is almost the same amount as what was paid to buy them. This means they will probably need to be replaced soon. Your computer equipment is about half-way through its useful life. You’ll need to make sure to allot funds for replacement furniture and computer equipment in your budget for next year or perhaps the year after.

Now it’s your turn

Here is a link to some real financial statements. Take a look at the SFP and the relevant notes, and see what you can infer about the organization’s financial health.

  1. Assets = $2,249,835
    Liabilities = $673,975
    Assets are much greater than liabilities. This is a good sign.
  2. Unrestricted operating fund = $611,365
    This is above zero, which is good.
  3. Accounts Receivable
    Total A/R = $ 82,919 of which about 80% is GST/HST receivable. The government may take its time repaying that, but you don’t need to worry about collecting it.
  4. This organization uses the word Amortization in place of Depreciation. The total depreciation is quite low. Looking more closely at the numbers (notes 5 and 1), it looks like computer equipment will need to be replaced in a couple of years. The organization may need some new furniture in about five years.

Want to learn more?

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Click here to register Wednesday, December 4, 2019. 9:00 a.m. to 12:00 p.m.

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