Accounting is the process of capturing, recording, configuring, analyzing and reporting financial information. While many individuals come face-to-face with financial information daily, much of it, when presented in financial statement format, is not intuitive or self-explanatory. Accounting information is presented on the assumption that one has a basic familiarity with the vocabulary of accounting.
Reading a set of financial statements is like shucking an oyster: You have to know what you are doing and work to get the meat.
Management, donors, lenders and regulators all use not-for-profit organizations’ financial statements. They do not see an organization’s day-to-day activities and, therefore, must rely on the non-profit’s financial statements to tell its story. It is important that these stakeholders learn accounting vocabulary and understand financial-statement basics in order to make intelligent use of the information.
This article is the first of a series intended to help non-profit stakeholders become knowledgeable spectators in the game by reviewing financial statements, understanding statement interactions, knowing the process of capturing financial data and producing statements, and understanding the role of an independent auditor. First, we will examine a basic set of financial statements.