Transparency In Ministry

Financial Statement Notations…OCBOA Differences

If “cash basis” financial statements are modified, the preparer should make the notation in the financial statement title that these are presented on a “modified cash basis.” For example, non-profit financial statements using the GAAP basis would say Statement of Net Assets and Statement of Activities, but under the modified cash basis would say Statement of Assets, Liabilities and Net Assets—Modified Cash Basis and Statement of Revenues and Expenses—Modified Cash Basis.

On the flip side, too many modifications could result in financial statements that are very similar in appearance to GAAP. If an outside accountant were asked to review or render an audit opinion on such financial statements, their report would have to be modified as well to disclose the subtle differences.

In summary, the subtle differences between GAAP, cash and modified cash basis of accounting can make presentation of financial statements confusing unless the end user is well aware of these differences, reminder the preparer to consider all facts in preparing information for management, the bank and other third parties.

As we learned in post #4 of 5, organizations must determine how to properly record leases, either as an operating or as a capital lease. In this post we will now assess how to determine prepaid expenses and unrecorded liabilities. To assist you in this determination print out the Church’s disbursement ledger for at least the last two months of the year. Review items that represent payments made before year end; but services or goods will not be received until after year end.

Prepaid/Other Assets Generally Consist of:

Prepaid Insurance
Prepaid TV/Radio Airtime
Prepaid Postage
Loan Origination Fees
Deposits

If payments were made before year end, relating to something to be received in the subsequent year, these payments must be properly recorded as a prepaid expense (asset).

The next step is to verify accrued liabilities at year end. Accrued liabilities represent invoices received subsequent to year end relating to services or goods received before year end. Review the subsequent year payments to the year in which the goods or services were received. If goods and services were received prior to year end, these items should be recorded as payables at year end.

To assist you in your closing efforts, see the Month/Quarter/Year end Closing Procedure Checklist (See Exhibit E).

This concludes our series for closing procedures.

Note: Continue to walk in integrity.

Posted by - Kirk Vanderslice