This blog to introduce you to balance sheets is the first in our Reading Financial Statements Series ©
What is a balance sheet?
Balance sheets present the financial position of your association as of a certain date, usually the month or year end.
What are the classifications of accounts on my association’s balance sheet?
• Equity or Funds
What the association owns or owns the rights to, including:
• Assessments and other receivables
• Prepaid expenses
What the association owes or is obligated to pay, including:
• Accounts payable (unpaid vendor invoices)
• Accrued expenses
• Prepaid assessments
• Deferred revenues
Equity or fund balances
The association’s net worth
Generally, represents the cumulative revenues minus expenses over the life of the association since its inception.
Basis of Accounting
One of my favorite topics is “What basis of accounting is used to present your association’s financial statements?”
Some balance sheet accounts will not be presented on financial statements if your association presents its financial statements using the cash basis of accounting. Being aware of what you are reading, as well as what may be missing from the balance sheet you are reviewing is important to your understanding of the association’s financial position each month.
We will dive deeper into the individual accounts like cash and receivables in future blogs. A short example of what to look forward to:
Cash – Do you know what your bank accounts are used for? Do you verify balances? Are you pursuing returns over security?
Receivables – Are you expecting to collect everything that is owed to the association? Did you bill for all services?
Payables -How much does the association owe to vendors?
Prepaid assessments – Are you shoring up today’s cash balances with money collected for future expenses?
Operating Fund (Equity) – Does the association have excess funds, has it been over-spending?