Statement of Financial Position

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Author:

Elizabeth Hamilton Foley

EHF

Topics:

Financial Management

Internal Reporting

It used to be called the balance sheet. Although the name of this report has changed in the nonprofit world to the “statement of financial position” (SOP), the concept and the equation are essentially the same as any business balance sheet or statement of personal net worth.

	Assets	(what you have or what you are owed)
minus	Liabilities	(what you owe to others)
equals	Net Assets	(what’s left over)

The SOP reflects the overall financial position of your organization at a given moment in time. It is the report that shows the accumulated results of all the individual years of your organization’s operations put together. It is important to learn how to read and understand your organization’s SOP report. Following is a discussion of the components of the SOP and what they can mean.

Assets

Assets are what your organization has, what is owed to you, what you have invested in, and what you have deposited with others.

What you have:

Cash in bank accounts, investment accounts, and petty cash
Things your organization has bought for future use, such as merchandise inventories or supplies
Fixed assets such as furniture, equipment, and improvements to your facility, listed at cost, that are non-liquid, as the cash has already been spent to acquire them
Accumulated Depreciation, a “contra asset” (against asset) indicating the extent the fixed asset has decreased in value as it is used up (depreciated) over its useful life
Collections of art, artifacts, other valuables related to your mission
Payments your organization has made for goods or services that have not yet been received or used such as annual insurance premiums that could be refunded to you if cancelled, or expenses relating to future fiscal years paid in advance (prepaid expenses)
Long-term investments of unrestricted or temporarily restricted funds
Long-term investments of permanently restricted principal such as endowment funds that cannot be used for operations

What is owed to you:

Grant awards promised to your organization but not yet received
Revenue earned from services provided by your organization for which payment has not yet been received
Loans your organization may have made to others

What you have deposited with others:

Deposits your organization has paid to others and is held by them on your behalf such as advance rent, utilities security deposits, payroll bonds, etc.

Assets are usually listed in order of declining liquidity. Short-term assets are those available as cash or equivalent within one year, and long-term after one year. Assets are a natural “debit balance” meaning that, in an accounting entry, a debit to an asset account will increase it. A negative number (credit balance) in the assets section of a balance sheet is unusual, and should be questioned and explained. The exception is Accumulated Depreciation, which, as noted above, is a “contra asset” (against asset) account that tracks the depletion of the value of fixed assets as they are used.

What you might want to ask when looking at the asset balances:

Cash