A fund balance on a Balance Sheet is the amount of equity an organization has.
What’s On A Balance Sheet?
A Balance Sheet is one of the financial statements an organization uses to view its assets, liabilities, and equity (sometimes referred to as net assets or fund balances by nonprofits) at a specific point in time. This report is basically a snapshot of an organization’s financial position.
These statements provide valuable information about the liquidity of the organization. They show how much cash the organization has available at a particular time. These figures are important for donors and supporters to get a sense of the health of an organization.
It’s also very useful for donors or board members to compare financial statements of similar organizations within a sector because they can get an idea about what to expect from similar nonprofits.
What Is A Fund Balance On A Balance Sheet?
The term “fund balance” is defined by accounting as the total assets minus the liabilities of a particular fund in an organization. It indicates how much money would be left over if all debts were paid off.
Here’s how to calculate your fund balance:
Fund Balance (Equity or Net Assets) = Assets – Liabilities
OR
Assets – Liabilities = Equity (Net Assets or Fund Balance)
So, What Are Net Assets On A Balance Sheet?
Net assets are synonymous with fund balances. They may also be referred to as equity. Liabilities are defined as anything you owe or have committed to giving in return for something else. You can determine your organization’s net assets (or net worth) by determining how much it owns versus everything it owes.
Types Of Assets On Your Financial Statements
Current Assets
Cash includes all fund accounts that can be turned into cash in the near future, such as bank account funds and checks. Cash equivalents are safe assets for funds because they can easily be converted into actual cash.
An organization’s receivables, or Accounts Receivable, are the short-term obligations owed to the nonprofit. An organization may sell products or services on credit; these obligations are counted as part of the nonprofit’s current assets until they have been paid off in full.
The third type of assets you’ll find is inventory, which represents raw materials, work-in-process goods, and finished goods. Depending on the nonprofit, the makeup of this account can vary significantly; any inventory counts as an asset for your organization.
Non-Current Assets
Non-current assets are long-term investments and items that are likely to last longer than a year. Balance Sheets can refer to tangible non-current assets, such as a building, or intangible ones, like a patent.
They also include any assets that aren’t immediately liquidatable, which means they shouldn’t be counted toward current assets. Although they are not typically viewed as physical assets themselves, these resources can greatly affect the health of an organization.
Liabilities On Balance Sheets
Assets are summarized at the top of the Balance Sheet and represent a nonprofit’s financial wealth. Liabilities, which make up the other side, are owed to outside parties, such as bondholders or banks. A long-term liability is a debt, such as a loan, that the nonprofit will owe for at least one year.
The current liabilities of an organization are its obligations that will be paid within the next year. These include both short-term debt, such as Accounts Payable on purchases and payments on long-term debt, such as last month’s interest on a 10-year loan (even though the total debt is measured as a long-term liability).
How To Read A Balance Sheet
The Balance Sheet contains three main areas, which are assets, liabilities, and equity. Your assets, or stuff you own, will be categorized and sorted as stated above to show how much of what you own is liquid vs non-liquid. Your liabilities, or stuff you owe, will provide the same short-term or long-term breakdown.
When calculating totals on a Balance Sheet, there are two key areas to look at: the organization’s assets and liabilities. The entire document should be in balance, where the value of the equity equals the organization’s assets minus its liabilities.
Limitations Of Balance Sheets
A Balance Sheet presents not only a picture of an organization’s assets and liabilities, but also an inclusive representation of its capital. The Balance Sheet is one of the most important pieces of information for board members, supporters, and analysts. However, it is a static financial statement. Because it represents a snapshot in time, it can only show a difference between that point in time and another single point in time in the past.
Think of a Balance Sheet as a “bookend” financial report. You typically run two Balance Sheets: one for the beginning of a period and one for the end of that period. These serve as your bookends, showing where you began and where you ended. The Income Statement, then, is the story of how you got from one fund balance to the other.
Aplos provides helpful resources, but it is not meant to be a substitute for professional services. Always consult a CPA or trusted professional when seeking tax or accounting advice.
