ORGANIZATIONS ARE FREE to design internal financial statements in any format that suits them. These statements are not to be confused with audited financial statements compiled by independent CPA firms, as the latter have specific formats and terminology promulgated by the Financial Accounting Standards Board of the American Institute of Certified Public Accountants.
Internal financial statements should be designed in a format that meets the particular needs of the individual organization. In an effort to avoid confusion and ensure consistency, however, these statements should at least reasonably approximate the appearance of audited financial statements, should use the same terminology in naming the various statements, and so forth.
The internal financial statements are the basis for the organization's chart of accounts and the Accounting and Financial Policies and Procedures Manual.
A typical not-for-profit organization's internal financial statements should include, at a minimum, the following:
1. The Statement of Financial Position (The Balance Sheet)
2. The Consolidated Statement of Unrestricted Activities (The Income Statement)
3. The Statement of Unrestricted Activities by Function (The Income Statement by Function)
4. The Statement of Temporarily Restricted Activities (The Income Statement of Temporarily Restricted Activities)
5. The Statement of Permanently Restricted Activities (The Income Statement of Permanently Restricted Activities)
6. The Statement of Changes in Net Assets (The Statement of Changes in Fund Balances)
The internal financial statements may follow the format of the six financial statements presented on the following five pages. Realistically, these statements, with the exception of the statement of financial position, would also include budget figures for the period.
A sample policy for financial statement preparation and distribution is included among the sample policies in the Accounting and Financial Policies and Procedures Manual section of this handbook.
Excerpted from Model Policies and Procedures for Not-for-Profit Organizations by Edward J. McMillan Copyright © 2008 by Edward J. McMillan. Excerpted by permission.
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