Balance sheet Financial Reporting

Balance sheet Financial Reporting
Balance sheet Financial Reporting

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Balance sheet Financial Reporting

The balance sheet captures the current financial position of the NGO. Net assets should balance with the liabilities and equity since the each of the asset is funded by the resources contributed by members and other sponsors. The statement should provide a snapshot of the assets, liabilities, and net assets as the specified date. Gabel’s statement of financial position gives detailed information about the financial position of the company as indicated by the figures. It has the assets section, the liabilities section, and the equity section.

Each fixed asset should have its book value minus the depreciation to get the current net value. By giving the value of the asset in a different line with its total depreciation value makes the balance sheet untidy and crowded making it hard to analyze (Elizabeth, 2010). The net of the fixed asset is the one used to analyze the current financial position of the organization. It is therefore important to indicate the net of the fixed assets to avoid confusion. Deductions and accruals should just indicate the total amounts instead of individual amounts since the receipts will be attached to the statement to avoid congesting the statement.

Since the company is a non-profit, the balance sheet should only indicate the assets and the liabilities. The assets and liabilities are the values used to indicate the financial position of the organization and not the equity hence the net income and equity are not inclusive.

Also, it is important for the accountants to indicate the previous year’s balance sheet values for comparison purposes. The current values should be shown against the previous year’s or, at least, the past three years to make the analysis of the statement viable. When the values of two periods are shown, it makes it easy for analysts to make comparisons and understand the changes that may have taken place to get the current balance sheet values.

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Income Statement

The statement is used to give information regarding the operating activities of the organization from one date to another. It gives information pertaining the revenues and expenses during a particular time, and it’s useful to forecast future activities. For NGOs, activities are measured as received and used contributions. The statement is divided between temporary, restricted, unrestricted, and permanently restricted activities.

Recorded revenues should be classified into one of the four activities based on the donor’s intent. Expenses should be divided into the program, administrative, and fundraising expenses. Revenues are either in the form of activities, membership dues, program revenues, special event and investment income. By categorizing revenues and expenses in the different classification, it provides for better analysis as well as being in line with the global accounting standards.

Gabel’s statement does not give columns for the different activities under income and expenses. By generalizing the revenues and expenses and indicating their categories randomly makes it hard for analysis and is not in line with the required reporting standards. It is also important that the statement also records prior year values for comparison purposes. Categorizing each activity and expense into the section they fall helps stakeholders identify gaps in the company for improvement.

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Statement of cash flows

Statement of cash flow is used to record the cash inflows and cash outflows over a specified period. The statement is divided into three sections: cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities (Ron, 2013). The total amount from the three sections gives an explanation of how the cash flow from the beginning of the period was converted to the balance at the end of the operating period.

Gabel’s statement should show the net cash for each of the sections and sum up the amounts resulting from same activity instead of detailing each activity. The statement is supposed to provide an overview of the cash flows to make it easy for reporting.

Accrual accounting

NGOs have a stringent requirement of using the accrual method of accounting as per the Generally Accepted Accounting Standards (Elizabeth, 2010). The accrual method records revenues when earned and expenses when they have been incurred. By using the accrual method, an organization can indicate its current financial position in a pronounced manner than the cash accounting method.

As an NGO, it is possible to get donors that offer to donate at a later period and when the amount is recorded, it gives the organization a stronger financial position. If Gabel uses the accrual methods, it can recognize pledges of donations and income when they have been made and record cash when it has been received making the income higher than if it used the cash accounting. Cash accounting only considers income when cash has been paid and expense when the amount has been disbursed making it hard to present the current financial position of the organization.

As long as a transaction is to take place and all the necessary conditions have been met then it should be recorded in the financial statements. With addition of statement of activities to the three financial statements, the company should apply accrual accounting to all its recordings not only to meet the required regulations but also to enable stakeholders have a correct view of the current financial position of the firm.

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Recommendations

1.    Gabel’s Company should increase its campaigns to reach to more people hence increase its chances of donations. Though the company has net profit, it has a lot of activities it requires to attend to and perform using its wide assets base. Through fundraising campaigns, more donors will be attracted to pay and if they are followed up, they may end up increasing the contributions amount hence increasing the net realized income.

2.    Another method the company can use is to increase member’s contributions and subscription fees as well as holding part of dividends to investment in rentals. The amount contributed by members can be added up at a small percentage with respect to individual member’s contribution and set of activity. If each member’s contributions is increased by a small margin, the total amount will subsequently increase helping to cover up for the administrative and other expenses to have a high income at the end of the period.

3.    The company should also dispose of some of its unused assets before they lose their value. The amount generated can then be used to invest in some of its productive investment activities. There is a lot of available assets that may be disposed of to increase the net income. Some of the depreciating assets should be sold and a portion of the land rented out or even sold to raise extra income for the company to facilitate its daily operations.

References

Elizabeth, 2010. How to assess non-profit financial performance. Retrieved from: http://www.nasaa-arts.org/Learning-Services/Past-Meetings/Reading-5-Understanding-Financial-Statements.pdf

Ron, 2013. Cash flow statement for NGOs. Retrieved from: http://smallbusiness.chron.com/purpose-cash-flow-statement-nonprofit-organization-11283.html

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