How to Read Nonprofit Financial Statements

In this lecture I answer the following questions:

• Who am I?

• How this course is different from traditional course?

• Who needs this course?

• How I designed the course?

• What is covered?

• How long it will take?

In this lecture I will discuss the following:

• What is a nonprofit and how it differs from a for-profit business
  examples of nonprofits

• How the three financial statements serve as a financial check-up for the nonprofit, much like we get health checkups

• Characteristics of the financial statements with a health checkup analogy

• What’s in the balance sheet

• What’s in the statement of account activities

• What’s in the statement of cash flows

• What’s the difference between activities and cash flow

Quiz for What Are Nonprofit Financial Statements

In this lecture I will discuss the following:

• Differences in assets on the balance sheets of a nonprofit and a profit

• Differences in liabilities and net assets (for a nonprofit) or equity (for a for-profit) on the balance sheets

• Differences in the nonprofit statement of activities and the for-profit income statement

• Differences in the operating activities section of the statement of cash flows between a nonprofit and a for profit

• Differences in the investing and financing activities of the statements of cash flows between a nonprofit and a for-profit

Quiz for What Are Differences Between For-Profit and Nonprofit Financial Statements?

In this lecture I will discuss the following:

• Typical transactions for a nonprofit in which there is a give-and-take

• Difference between assets and net assets

• Balance sheet equation for nonprofits

• Simple balance sheet equation example

• Define assets, liabilities, and net assets

Quiz for  The Balance Sheet Equation for  Nonprofits

In this lecture I will discuss the following:

• How the give-and-take that occurs within nonprofit stakeholders are reflected on the financial statements

• Simple financial statements example for year one

  • Example for year two

• How the statements relate with a cash bucket diagram

• How the statements relate with a net assets bucket diagram

Quiz for How do Financial Statements Relate for  Nonprofits

In this lecture I will discuss the following:

• Background information for the Gates Foundation

• Where you can find the Gates Foundation Financial Statements and Tax Returns on the Internet

• Overview of the balance sheet

• Line-by-line explanation of each of the accounts that appear on the Gates Foundation balance sheet

Quiz for  Bill & Melinda Gates Foundation Statement of Financial Position

In this lecture I will provide a shortened version of the Gates Foundation Statement of Activities and discuss:

• Two entities that are consolidated into one statement: There is the Gates foundation and the Gates trust fund.

• How nonprofits typically show two funds: one with donor restrictions and another without donor restrictions and contrast that with the Gates Foundation

• Line by line the details of the Gates Foundation statement of activities

• How the statement of activities ties into the balance sheet

Quiz for Bill & Melinda Gates Foundation Statement of Activities

In this lecture I will provide a detailed version of the Gates Foundation Statement of Activities and discuss:

• Two entities that are consolidated into one statement: there is the Gates Foundation and the Gates Trust Fund.

• How nonprofits typically show two funds: one with donor restrictions and another without donor restrictions and contrast that with the Gates Foundation

• Line by line the details of the Gates Foundation statement of activities

• How the statement of activities ties into the balance sheet

In this lecture I will discuss the following:

• Line by line explanation of the Gates Foundation statement of cash flows

• How the statement of cash flows ties into the balance sheet

Quiz for Bill & Melinda Gates Foundation Statement of Cash Flows

In this lecture I will discuss the following:

• Timing differences between cash receipts on the statement of cash flows and revenues on the statement of activities

• Timing differences between cash payments on the statement of cash flows and expenses on the statement of activities

Quiz for Difference Between Cash Flow and Income

In this lecture I will discuss the following:

• Accrual accounting for nonprofit organizations and recognize that accrual accounting is a much more comprehensive system than merely keeping track of cash

• Both sides of a transaction with a stakeholder, both the give-and-take, are recorded separately

• Illustration with 12 common transactions that stakeholders have with stakeholders:

  • Donor promises to make a contribution

  • Donors pay on that promise

  • Nonprofit purchases supplies from vendors on account

  • Nonprofit pays for those previously purchased supplies

  • Nonprofit borrows to buy equipment such as a van

  • Nonprofit uses heat and electricity

  • Nonprofit pays for the heat and electricity

  • Nonprofit employees work and earn wages

  • Nonprofit pays those employees

  • Nonprofit delivers on its mission; in this case we’re going to use the example of a nonprofit delivering and distributing medical supplies to a disaster area

  • Nonprofit makes a payment on the loan it had taken out

  • Nonprofit depreciates the van

Quiz for Accrual Accounting Nonprofit Basics

In this lecture I will discuss the following:

• Simple example to illustrate why only accrual accounting can measure the activity of a nonprofit.

• Activity for a nonprofit would be if you were to only measure cash.

• Only accrual accounting has the capability to accurately measure activity

Quiz for Can’t Measure Nonprofit Activity with Cash

In this lecture I will discuss the following:

• Begin with the example from the last lesson

• How accrual accounting can both record cash and profits using a spreadsheet. This is the basis for bookkeeping and basic accounting. We won’t go into this in detail, but it is important that you have an idea how transactions are recorded in accrual accounting at a high level. You will see that the cash side of a transaction with a stakeholder is usually recorded separately from the other side of the transaction.

• Where the financial statements come from

• Record all of the cash transactions

• Record all of the activity transactions

• Record all of the other accounts that are used to balance the transactions

• See that accrual accounting can record transactions that don’t affect cash at all, for example, donations of physical objects, such as supplies and vehicles

• See that accrual accounting records transactions before the cash is received or paid, like pledges and purchases on account

Quiz for  How Accrual Accounting Measures Both Nonprofit Activity and Cash

In this lecture I will discuss the following:

• Background information that describes the American National Red Cross

• Where to find the American National Red Cross’s financial statements and tax returns

• Overview of the balance sheet, which is more formally called the statement of financial position

• Line by line explanation of the balance sheet for the American National Red Cross

Quiz for The American National Red Cross Statement of Financial Position

Quiz for The American National Red Cross Statement of Activities

In this lecture I will discuss the following:

• Overview of the statement of cash flows

• Line by line explanation of the American National Red Cross’s statement of cash flows

Quiz for The American National Red Cross Statement of Cash Flows

In this lecture I will discuss the following:

• Wikimedia Case to test the knowledge you have acquired so far

• General information about Wikimedia

• Take the quiz that follows, which is the case and provides feedback

Wikimedia Case.  If you wish, you can download the Wikimedia financial statements, but the case is entirely contained in this 30 question quiz.

In this lecture I will discuss the following:

• Background information about the IRS Form 990

• Which type of nonprofit organizations must file Form 990

• When the form 990 must be filed

• Purpose behind Form 990

• Various sections of the form

• Where you can find Form 990

Quiz for What is Form 990 and Who Files It?

In this lecture I will discuss the following:

• Bill and Melinda Gates foundation form 990

• American National Red Cross form 990

Quiz for How to Read Form 990

In this lecture I will discuss the following:

• How to access Guidestar to find a form 990 for a nonprofit

• How to access Charity Navigator

• How to access Citizen Audit