Accounting 101

Financial accounting is the act of tracking transactions with the goal of providing accurate and timely information about an organization’s financial position and performance.  Without accounting, it is difficult to predict cash flow, raise money for projects, or know if you can afford new equipment or additional staff. Accurate accounting also allows for budgets to be more precise when submitting grant applications to fund projects. Without accounting, an organization will struggle to maintain their operations and effectively expand.

The results of accounting allow the user to generate reports that provide relevant and reliable information to aid in decision-making, financial management, and necessary compliance. The two most used summary reports are the balance sheet and income statement. In the Nonprofit industry these are called the Statement of Financial Position and Statement of Financial Activity. See also Statements of Financial Position and Statements of Financial Activities.

Balance Sheet (Statement of Financial Position)

A balance sheet shows the financial position of an organization’s assets, liabilities, and net assets at a specific point in time.

The layout of the balance sheet is based on the following formula: ASSETS = LIABILITIES + NET ASSETS

Income Statement (Statement of Financial Activity)

An income statement shows an organization’s revenue, expenses, and net income(loss) over a specified period.

The layout of the income statement is based on the following formula: REVENUE – EXPENSES = NET INCOME