Trustee

January 1999

The Trustee communicates issues affecting libraries and library services. Once a library and systems join LTA, all their trustees automatically receive this quarterly publication published by LTA. To learn more about membership in LTA, Click Here.

Making Sense Of Your Library's Financial Statements

by Davis Crippen, NYSALB Trustee

January 1999 issue of Trustee

There are two major financial statements. One is a statement of Profit and Loss or Income and Expenses. The other, which is discussed below is the Balance Sheet. The library's balance sheet. What is it? As a library trustee, what am I supposed to do with it? The example below is a sample balance sheet that I've concocted for an imaginary library. Yes, fine, but what does it say?

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Tappan Slote Library Balance Sheet

as of December 31, 1997

Assets Liabilities and Fund Balance
Current Assets Current Liabilities
Cash $ 6,615.00 Accounts Payable $ 2,600.00
Short Term Securities $23,000.00 Accrued Expenses $ 1,300.00
Pledges Receivable (net) $ 9,000.00 Current Portion of Mortgage $25,000.00
Fines Receivable (net) $ 35.00
Supplies $ 250.00
Total Current Assets $38,900.00 Total Current Liabilities $28,900.00
Long term Assets Mortgage Payable $100,000.00
Land, Buildings & Equipment $300,000.00 Fund Balance $210,000.00
Total Assets $338,900.00 Total Liabilities and $338,900.00
Fund Balance

 

A balance sheet is an inventory of the financial resources (assets) and obligations (liabilities) of an organization. How much do you owe? How much do you own and how much do you have coming in? That's what a balance sheet can tell you about the organization with which you're associated.

Let's see how a balance sheet is put together. First, keep in mind that a balance sheet does just that, it balances. As you can see in the above example, the total of the assets on the left is exactly the same as the total of the liabilities and the fund balance on the right.

What is a fund balance? It's a figure that's used by non-profit organizations to balance the two sides of a balance sheet. Hopefully when you count up all your assets on the left and match them against all your liabilities on the right, the total of what the organization owns and has coming in will be more than you owe. If it is, you have a positive fund balance. If, unfortunately, the opposite is true, you'll have a negative fund balance, but you still have a fund balance. For a for-profit organization like General Motors, the equivalent of the fund balance is their net equity.

The second point to keep in mind is that a balance sheet is a snapshot not a movie. It freezes and reports on the situation at a specific time -- in the above balance sheet example, as of December 31, 1997.

As you can see from the sample balance sheet, the assets side is divided into two principal parts---current assets and long term assets. There is a similar division of liabilities on the other side of the balance sheet. The current accounts are ones you expect to collect on, make use of, or pay in the relatively near future, often a year. In contrast, long term accounts are certain items that you work with over a long period of time such as your building and the mortgage on it.

There is much more to be said about balance sheets but there is limited room to review all of the material in this issue of TRUSTEE. If you want to know more about the process, the following book was helpful in preparing this article and will help you learn a great deal more about balance sheets. The book is Financial Management in Non-Profit Organizations by Richard F. Wacht. The book was published in 1984 by the Business Publishing Division of the College of Business Administration at Georgia State University. The book is probably a prime candidate for borrowing through your interlibrary loan system.


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