HOW TO CREATE A BALANCE SHEETNOTE:
In early 2006, Rasmuson Foundation announced modified format requirementsfor both the operating financial statements and the annual audit as requested in theapplication process. The Foundation felt these modifications to be necessary in order toprovide more easily understood information to assist boards and staff in makinginformed, high quality decisions, be they organizational, programmatic or financial. Thisnew format requirement went into effect for applications
beginning
July 1, 2007
(seespecific requirements on website).This modified format is GAAP (generally accepted accounting principle) compliant andhas been reviewed, discussed and endorsed by much of the statewide accounting / auditcommunity.Since mid-2006, The Foraker Group has provided training opportunities across the stateand also offers a technical assistance hotline at 907 743-1210 or toll free 877 834-5003.A sample audit document with detailed explanations is available on the Foundationwebsite. This includes a balance sheet in the modified format.The following document discusses “balance sheets” in a general sense and is notintended to be a substitute for qualified financial expertise. The specific format changes,as now required, are identified.
A balance sheet is a snapshot of a business’ financial condition at a specificmoment in time. A balance sheet comprises assets, liabilities and net assets(equity). At any given time, assets must equal liabilities plus net assets (equity).FORMAT
The balance sheet must use a two-year comparative format. The balance sheet shouldprovide the data for both the current year period and the data for the same period for theprior year.
ASSETS
An asset is anything a business owns that has monetary value. List anything of valuethat is owned or legally due the business. Assets are divided into short-term (currentassets) and long-term (fixed assets and long-term investments). Total assets is the totalof all short-term and long-term assets.
Current assets
Cash: list cash and resources that can be converted into cash within 12 months of thedate of the balance sheet (or during one established cycle of operation). Include moneyon hand and demand deposits in the bank, e.g., checking accounts and regular savingsaccounts.
o
Petty cash: if your business has a fund for small miscellaneous expenditures,include the balance in that account here (unrestricted cash).
o
Short-term investments: also called temporary investments or marketablesecurities, these include interest- or dividend-yielding holdings expected to beconverted into cash within a year. List stocks and bonds, certificates of depositand time-deposit savings accounts at either their cost or market value, whichever is less.
o
Accounts receivable: the amounts due from customers in payment for merchandise or services.
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o
Inventory: includes raw materials on hand, work in progress and all finishedgoods, either manufactured or purchased for resale.
o
Prepaid expenses: goods, benefits or services a business pays for in advance of actual use. Examples are office supplies, insurance, etc.IMPORTANT: Distinguish between
unrestricted
(can be used at any time for anything)cash and
restricted
(must be used for specific purpose as designated by grant maker or funder) cash.
Long-term or non-current assets
Includes
long-term investments
, which are holdings the business intends to keep for atleast a year and that typically yield interest or dividends (e.g. endowment). Included arestocks, bonds and savings accounts earmarked for special purposes (use appropriatecategory description as opposed to stocks, bonds, etc.).Includes
fixed assets
which are resources a business owns or acquires for use inoperations and not intended for resale. Assets should reflect any depreciation andamortization from the original costs of acquiring the assets.
o
Land-List original purchase price without allowances for market value.
o
Buildings
o
Improvements
o
Equipment
o
Furniture
o
Automobile/vehiclesIMPORTANT: Combine appropriate assets into descriptions such as “Building Reserve”of “Endowment” rather than dividing them among generic captions such as “Cash” and“Investments”.
LIABILITIES
Liabilities are all debts and obligations owed by the business to outside creditors,vendors or banks that are payable within one year. They are accounted for as short-term (current) and long-term liabilities.
Current liabilities
List all debts, monetary obligations and claims payable within 12 months or within onecycle of operation. Typically they include the following:
o
Accounts payable: amounts owed to suppliers for goods and services purchasedin connection with business operations.
o
Notes payable: the balance of principal due to pay off short-term debt for borrowed funds.
o
Interest payable: any accrued fees due for use of both short- and long-termborrowed capital and credit extended to the business.
o
Taxes payable: amounts estimated by an accountant to have been incurredduring the accounting period.
o
Payroll accrual: salaries and wages currently owed.
o
Prepaid grants or other income received that obligate your organization to dospecified things that you have not yet accomplished. (examples: ticket revenuereceived for an event that has not yet happened or a grant received that is for aspecific project you have not yet completed or initiated)
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Long-term or non-current liabilities
Notes payable: list notes, contract payments or mortgage payments due over a periodexceeding 12 months or one cycle of operation. They are listed by outstanding balanceless the current position due.
NET ASSETS
Also known as “equity”, it is the total amount of money your organization hassaved/retained from prior year operating fund balances. In the non-profit sector, equityis also called retained earnings or fund balances. Effectively, it is the difference betweentotal assets and total liabilities.IMPORTANT: Classify unrestricted net assets among amounts (1) available for operations; (2) designated for specific purposes by the board; and (3) invested inproperty, plant and equipment and therefore unavailable for spending.
Total liabilities and net assets
Total liabilities and net assets (equity) must always equal total assets.
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RF Guidelines Balsheet 10-07
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