A statement of financial position is a type of budget sheet used commonly by nonprofit organizations. When written correctly, these statements can give professionals an accurate reading of an organization's financial status. To write a statement of financial position, it is important to collect all of the information reflective of an organization's assets and liabilities. When you subtract liabilities from assets, you get the net worth of assets, which represents the organization's current financial position: the accumulated value of all its actions up to a point.
To prepare a statement of financial position, your first step should be to gather statements about all of your assets. In short, there are three kinds of assets: liquid assets, fixed assets, and long-term assets. Liquid assets are those that are available to you; these might include cash that you can immediately withdraw and spend and any expenses you already have paid for but have not yet used. Fixed assets include inventory items, equipment, and commercial real estate. Long-term assets, on the other hand, are investments and deposits.
As you are determining your net assets, you should remember to break these assets into three different categories. The first group is made up of restricted assets, such as endowments. In most cases, only large organizations with substantial budgets are able to keep these kinds of assets, since they cannot be easily accessed. A small business with pressing cash flow concerns might find that restricted assets do more harm than good.
Temporarily restricted assets describe funds that are accessible only at certain times. For example, a certain amount of money might be put aside to complete a designated project. It also is possible that these assets be set aside to purchase new equipment or other forms of capital.
Unrestricted assets include money that professionals can access. For example, cash that is used daily in a retail setting is considered unrestricted. When executives or board members decide to embark on projects, they might open up temporarily restricted assets, making them unrestricted.
Next, an individual who is preparing a statement of financial position should concentrate on gathering information on liabilities. Some common examples of short term liabilities are accounts payable and lines of credit. Long term liabilities might include mortgages and other debts that must be paid over long periods of time.
Once you have subtracted your liabilities from your assets, you are left with net worth. It is common for professionals to categorize total net assets by their restricted and unrestricted statuses. You also should provide explanations, usually no longer than a paragraph each, that explain how potentially questionable values were determined.
