How to Balance Sheet

HOW TO CREATE A BALANCE SHEET

NOTE:

                In early 2006, Rasmuson Foundation announced modified format requirements for both the operating financial statements and the annual audit as requested in the application process. The Foundation felt these modifications to be necessary in order to provide more easily understood information to assist boards and staff in making informed, high quality decisions, be they organizational, programmatic or financial. This new format requirement went into effect for applications beginning July 1, 2007 (see specific requirements on website).

This modified format is GAAP (generally accepted accounting principle) compliant and has been reviewed, discussed and endorsed by much of the statewide accounting / audit community.

Since mid-2006, The Foraker Group has provided training opportunities across the state and 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 Foundation website. This includes a balance sheet in the modified format.

The following document discusses “balance sheets” in a general sense and is not intended 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 specific moment 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 should provide the data for both the current year period and the data for the same period for the prior year.

 

ASSETS

An asset is anything a business owns that has monetary value. List anything of value that is owned or legally due the business.  Assets are divided into short-term (current assets) and long-term (fixed assets and long-term investments). Total assets is the total of all short-term and long-term assets.

Current assets

Cash: list cash and resources that can be converted into cash within 12 months of the date of the balance sheet (or during one established cycle of operation). Include money on hand and demand deposits in the bank, e.g., checking accounts and regular savings accounts.

• Petty cash: if your business has a fund for small miscellaneous expenditures, include the balance in that account here (unrestricted cash).
• Short-term investments: also called temporary investments or marketable securities, these include interest- or dividend-yielding holdings expected to be converted into cash within a year. List stocks and bonds, certificates of deposit and time-deposit savings accounts at either their cost or market value, whichever is less.
• Accounts receivable: the amounts due from customers in payment for merchandise or services.
• Inventory: includes raw materials on hand, work in progress and all finished goods, either manufactured or purchased for resale.
• 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 at least a year and that typically yield interest or dividends (e.g. endowment). Included are stocks, bonds and savings accounts earmarked for special purposes (use appropriate category description as opposed to stocks, bonds, etc.).

Includes fixed assets which are resources a business owns or acquires for use in operations and not intended for resale.  Assets should reflect any depreciation and amortization from the original costs of acquiring the assets.

• Land-List original purchase price without allowances for market value.
• Buildings
• Improvements
• Equipment
• Furniture
• Automobile/vehicles

IMPORTANT: 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 one cycle of operation. Typically they include the following:

• Accounts payable: amounts owed to suppliers for goods and services purchased in connection with business operations.
• Notes payable: the balance of principal due to pay off short-term debt for borrowed funds.
• Interest payable: any accrued fees due for use of both short- and long-term borrowed capital and credit extended to the business.
• Taxes payable: amounts estimated by an accountant to have been incurred during the accounting period.
• Payroll accrual: salaries and wages currently owed.
• Prepaid grants or other income received that obligate your organization to do specified things that you have not yet accomplished. (examples: ticket revenue received for an event that has not yet happened or a grant received that is for a specific project you have not yet completed or initiated)

Long-term or non-current liabilities

Notes payable: list notes, contract payments or mortgage payments due over a period exceeding 12 months or one cycle of operation. They are listed by outstanding balance less the current position due.

NET ASSETS

Also known as “equity”, it is the total amount of money your organization has saved/retained from prior year operating fund balances.  In the non-profit sector, equity is also called retained earnings or fund balances. Effectively, it is the difference between total 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 in property, plant and equipment and therefore unavailable for spending.

Total liabilities and net assets

Total liabilities and net assets (equity) must always equal total assets.

BALANCE SHEET
ORGANIZATION NAME

As of ____________________________, 2007

                                                  2007                                    2006

ASSETS

Current assets

Unrestricted cash                        $_______                            _______

Temporarily restricted cash       $_______                            _______

Accounts receivable                   $_______                            _______

Pledges & grants receivable       $_______                            _______

Inventory                                      $_______                            _______

Prepaid expenses                       $_______                              _______

Long-term or non-current assets

Property, plant & equipment     $_______                             _______

Includes:

Land
Buildings
Improvements
Equipment
Furniture
Automobile/vehicles

Long term pledges &                 $_______                              _______     
grants receivable   

Endowment                                 $_______                              _______

Other assets

o    1. ___________________  $_______

o    2. ___________________  $_______

o    3. ___________________  $_______

o    4. ___________________ $_______

TOTAL ASSETS                                          $_______                               _______

(must equal total liabilities and net assets / equity)

LIABILITIES

Current liabilities

Accounts payable                           $______                            _______

Notes payable                                 $______                            _______

Interest payable                              $______                            _______

Taxes payable                                 $______                            _______

Includes:

Federal payroll tax
Self-employment tax
Sales tax
Property tax                                      

Prepaid grants or receipts             $______                            _______

Long-term or non-current liabilities

Notes payable                                 $______                            _______

Total liabilities                                             $______                            _______

NET ASSETS

Unrestricted, designated for:

Operations                                       $______                            _______

Reserve                                            $______                            _______

Endowment                                     $______                            _______

Property, plant & equipment         $______                            _______

Total unrestricted net assets                    $______                            _______

Temporarily restricted net assets            $______                            _______

Permanently restricted net assets            $______                            _______

Total net assets                                          $______                            _______

TOTAL LIABILITIES and NET ASSETS              $______                            _______

(Total assets must equal total liabilities and net assets / equity)