Streetsmart Financial Basics for Nonprofit Managers

Chapter 5Balance Sheets: How They Get That Way

More than any other single financial report, the balance sheet is a window into the fiscal heart of the nonprofit corporation. In one concise accumulation of numbers, the balance sheet shows an impressive array of data about the results of virtually every fiscal policy the organization has ever pursued. Unfortunately, its trove of information is often concealed to the untrained eye. In this chapter, we scrape some of the frost off that window and help the ordinary observer make sense of what's inside.

The balance sheet is an ingenious device. On one side, it places all the things of value of an organization, its assets. On the other side, it places the claims of outsiders against those resources, otherwise known as liabilities. Whatever is left over on that side is considered equity or, in the nonprofit world, net assets (formerly fund balance). This leftover is essentially a form of ownership claim against the assets. Adding up the assets gives you exactly the same amount as the sum of the liabilities and equities. Now you know why they call it a balance sheet.

The rest of this chapter will explain all the balance sheet categories and describe how they behave. The numbers next to the line item name refer to the lines on the IRS Form 990. Exhibits 5.7 and 5.8 (see end of this chapter) show both the new and the old IRS Form 990 for ...