Financial Reporting 101

Financial Reporting 101

Running an organization without proper financial reporting, or without understanding how to interpret financial reports, can put the organization at risk.  What financial reports should you have and what questions do you need to ask?   This depends in large part on your organization’s financial situation, however today we will focus on two of the most commonly used reports and suggest some key questions that these reports can help you to answer.

Reconcile to the Bank

Before generating any financial reports, it is important to know that your books have been reconciled to the bank to the end of the period being reported.  What this means is that all deposits and payments on your bank statement match all deposits and payments recorded in your accounting system.  This can be ascertained with a Bank Reconciliation report.

Once you are confident your books are reconciled to the bank, financial statements can be generated from the accounting system. The most commonly used reports are the balance sheet (also called the Statement of Financial Position) and the income statement (also called the P&L or Statement of Operations).

Balance Sheet

The balance sheet provides a snapshot of your assets (what your own), liabilities (what you owe) and net assets (the difference between the two) at a point in time.  Some key questions to ask about the balance sheet include:

  • How much cash do we have on hand? How (and why) has that changed compared to the previous period?
  • What percentage of accounts receivable is current? Which specific accounts are past-due?   Has provision been made for uncollectible accounts?
  • Who do we owe money to, and are payments being made on time?
  • What makes up balances in Prepaid Expenses, Accrued Liabilities and Deferred Revenue?

Several key balance sheet ratios should be calculated and monitored, and these are described in more detail in our blog Three Key Financial Ratios NPO Board Members Should Monitor.

Income Statement

The income statement measures revenues and expenses that have been recorded over a specific period, for example the year ending December 31, 20XX.  Key questions to ask include:

  • How do revenues and expenses compare to prior periods, for example compared to the same period last year? If the change is material, what is the explanation?
  • How do amounts compare to budget? If variances are material, what is the reason?
  • What is our forecasted net income? What might prevent us from achieving that forecast?

Interpreting financial statements and knowing what questions to ask is a key responsibility of management and the board of directors.  An excellent resource for non-financial people is CPA Canada’s A Guide to Financial Statements of Not-For-Profit Organizations, available online at https://tinyurl.com/yckk88uv

If you would like to learn more about financial reporting, or you need help improving operating efficiency, reducing costs and strengthening your organization, please contact me at 613-727-1230 ext. 212 or rmacneill@otusgroup.com

Richard MacNeillFCPA, FCMA, CMC, Dipl. T. is a partner at OTUS Group, a team of advisors to business, government and not-for-profit organizations.

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Richard MacNeill
President, OTUS Group | OTUS Group
Holding Certified Management Accountant (FCMA), Chartered Professional Accountant (FCPA) and Certified Management Consultant (CMC) designations, Richard is also a graduate of the British Columbia Institute of Technology, holding a diploma in Computer Programming and Systems Technology.
Outside of work, Richard enjoys spending time with his wife and three children, and training for obstacle races.

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