Fluent Essays

Please see the below the questions that I would like to have answered. This assignment must consist of 300+ words with 2 Scholarly Sources, the below reference must be used as one source. **NO PLAGIARISM WHATSOEVER**Question: What is the Statement of Financial Position? Activity statement? Cash flow? How are the financial statements used in Emergency Response Organization? Reference and Textbook are below;Finkler, S. A., Calabrese, T., Purtell, R., & Smith, D. L. (2013). Financial management for public, health, and not-for-profit organizations (4th ed.). Boston: Pearson. textbook.pdf Unformatted Attachment Preview 10 PART V Reporting Results TAKING STOCK OF WHERE YOU ARE: THE BALANCE SHEET The learning objectives of this chapter are to:       introduce and define financial accounting and the statement of financial position, or balance sheet ; S M discuss the entity, monetary denominator, objective evidence, conservatism, going concern, and materiality GAAP; I explain and discuss the accrual basis of accounting; T accounts receivable, inventory, prepaid expenses, fixed discuss various asset categories, including cash, marketable securities, assets, and sinking funds; H discuss various liability categories, including accounts and wages payable, and long-term debt; , discuss net assets including the subcategories of unrestricted, temporarily restricted, and permanently restricted net assets; and provide a framework for financial accounting, based on the fundamental equation of accounting; introduce the concept of Generally Accepted Accounting Principles (GAAP);    discuss the process of recording financial information and generating a balance sheet. ISBN 1-323-02300-3 A D INTRODUCTION A We now turn our attention to M the process of recording events, summarizing them, and reporting results. The process of recording financial information is done on an ongoing basis throughout the year. Periodically—monthly, quarterly, or annually—events are summarized. At least annually, the2summarized events are then organized into a reporting form that helps managers and outsiders understand the current financial status of the 0 done from a financial standpoint. organization and how well it has This reporting process can 0 be thought of as the concluding phase of a planning, implementing, controlling, and reporting cycle. The financial management aspects of 8 planning, implementing, and controlling activities are often referred to as managerial accounting. Any information T generated is primarily for the use of managers in their efforts to optimize the results of the organization. Thus, the focus of the book so far S is primarily internal. Our efforts have been to develop tools and techniques that aid in managing the organization. There is also an external side of financial management. Financial reports are prepared by organizations. These reports help managers to understand the current financial situation of the organization and the financial results of its operations. However, they provide information not only for the use of management of the organization but for outsiders as well. Banks, donors, landlords, vendors, legislators, regulators, unions, bond raters, and others are interested in the performance of public service organizations. Preparation of financial reports that will be examined by individuals external to the organization is referred to as financial accounting. For example, a union may want to understand the finances of an organization to determine whether the organization can afford to give its members a raise. A donor may 313 Financial Management for Public, Health, and Not-for-Profit Organizations, Fourth Edition, by Steven A. Finkler, Thad D. Calabrese, Robert M. Purtell, and Daniel L. Smith. Published by Prentice Hall. Copyright © 2013 by Pearson Education, Inc. 314 Part V • Reporting Results want to examine the finances of a charity to determine whether it puts donated resources to good use. A supplier may want to decide whether it is safe to sell to the organization without immediate payment. A bank may want to examine the finances of an organization before it makes a loan to determine if the organization will be able to repay the loan. To provide these outside users with information that they can understand and that is somewhat comparable among organizations, a set of accounting conventions is employed. These conventions are called Generally Accepted Accounting Principles (GAAP). GAAP are developed by the Financial Accounting Standards Board (FASB) and the Governmental Accounting Standards Board (GASB). A number of these accounting conventions are discussed throughout the remaining chapters of this book. The FASB (pronounced faz-B) establishes the GAAP (pronounced gap) that govern the financial reporting of most types of organizations, including health care and not-for-profit organizations. The GASB (pronounced gaz-B) establishes the rules followed by state and local government bodies. As a result of the need to comply with rules imposed by FASB or GASB, S financial accounting is more rigid in many respects than managerial accounting.1 M Managerial accounting is primarily prospective in nature. It is the process of preI and controlling activities to achieve good results in paring plans, and then implementing the coming time periods. By contrast, T financial accounting is historical. At the end of an accounting period, it looks back to see just how stable the organization is and how well H it has actually done. At least once each year, organizations prepare a set of financial statements that sum, marize their financial position and the financial results of the organization’s activities. The statement of financial position, commonly referred to as the balance sheet, is the first of the financial statements, and it is the A topic of this chapter. A balance sheet reports the financial position of the organization at a moment in D Chapter 11 looks at activity and cash flow statetime—often the end of the fiscal year. ments. Activity statements assess whether A the organization has had more or less revenues than expenses or expenditures for the year. Since many organizations use some form M results reported in the activity statement may difof accrual accounting, the operating fer from the organization’s cash flow. Cash flow statements focus on the organization’s sources and uses of cash. 2 Together, Chapters 10 and 11 provide the essential elements of financial accounting. However, there are a variety of0special accounting rules for different types of public service organizations. Chapter 12 discusses special financial accounting concerns of not0 for-profit and health care organizations. Chapters 13 and 14 consider special financial 8 organizations. accounting concerns for governmental T THE FRAMEWORK FOR FINANCIAL ACCOUNTING S Exhibit 10-1 presents a hypothetical balance sheet for Meals for the Homeless. For any specific entity, this financial document provides a highly summarized view of its financial position at any one particular point in time. An entity is a person, organization, or distinct suborganization. The balance sheet has often been compared to a still photograph. For a specific moment in time, this financial statement provides a great deal of information about the organization. All organizations, whether for-profit or not-for-profit, private or public, use the balance sheet. FASB and GASB are private sector organizations that promulgate accounting standards. For corporations that are subject to Securities and Exchange Commission (SEC) jurisdiction, the SEC has the final word if their rules disagree with FASB accounting standards. For state and local governments, state and local law dictate the extent to which the governments must follow GASB standards. Financial Management for Public, Health, and Not-for-Profit Organizations, Fourth Edition, by Steven A. Finkler, Thad D. Calabrese, Robert M. Purtell, and Daniel L. Smith. Published by Prentice Hall. Copyright © 2013 by Pearson Education, Inc. ISBN 1-323-02300-3 1 Chapter 10 • Taking Stock of Where You Are: The Balance Sheet 315 Exhibit 10-1 Meals for the Homeless Statement of Financial Position As of December 31, 2013 Assets Liabilities and Net Assets Current Assets Liabilities Cash $ Marketable securities Accounts receivable, net of estimated uncollectibles of $8,000 1,000 Current Liabilities 3,000 Wages payable 55,000 Inventory 2,000 Prepaid expenses 1,000 Total Current Assets $ 62,000 Long-Term Assets Fixed assets Property Equipment, net Investments Total Long-Term Assets Total Assets $ 40,000 35,000 $ 2,000 Accounts payable 3,000 Notes payable 5,000 Current portion of mortgage payable 5,000 S Total Current Liabilities M I Liabilities Long-Term T payable Mortgage Total Long-Term Liabilities H Total Liabilities , $ 15,000 $ 11,000 $ 11,000 $ 26,000 8,000 $ 83,000 $145,000 Net Assets A and Net Assets Total Liabilities 119,000 $145,000 D A Can the organization begin a rapid new expansion of services? Must it severely M restrict its services to survive? These and other questions are often asked about an organization. The balance sheet can help address such questions. The balance sheet provides an overview of the financial position of the organization. How much cash does 2 Does it owe a lot of money to the organization have? What other resources does it have? other organizations? Will that money have to be repaid 0 in the near future? The balance sheet is derived from information contained in the fundamental equation of accounting. 0 The Fundamental Equation of Accounting 8 The framework for financial accounting was developedThundreds of years ago. It is based on an equation, as follows: S Assets  Liabilities  Owners’ Equity ISBN 1-323-02300-3 Assets are anything the organization owns of value. Liabilities are obligations owed to outsiders. Owners’ equity represents the share of the organization’s assets owned by its owners. By definition, the preceding equation is always in balance. Therefore, once we determine the organization’s assets and liabilities, the owners’ equity is a residual amount needed to balance the equation. If we know the resources we have (assets) and how much we owe (liabilities), then the amount that would be left over if we used some of our assets to pay off all that we owe is called the owners’ equity.2 2 Because owners’ equity is a residual number once assets and liabilities have been determined, owners’ equity will be a good representation only if assets and liabilities have been accurately measured. Financial Management for Public, Health, and Not-for-Profit Organizations, Fourth Edition, by Steven A. Finkler, Thad D. Calabrese, Robert M. Purtell, and Daniel L. Smith. Published by Prentice Hall. Copyright © 2013 by Pearson Education, Inc. 316 Part V • Reporting Results This is similar to the equity a person has in his or her house. If you buy a house for $250,000 and pay for it with $50,000 of your own money and $200,000 borrowed from a bank, the asset (the house) is worth $250,000, the liability to repay the bank (mortgage payable) is $200,000, and your equity in the house is $50,000. People typically use the term net worth to refer to their own personal financial net value after subtracting all of their debts from their assets. For individuals, the fundamental equation would appear as follows: Assets  Liabilities  Net Worth or Assets  Liabilities  Net Worth In a for-profit corporation, owners’ equity is called stockholders’ equity. In notfor-profit and governmental organizations, owners’ equity is referred to as net assets or net position, because that it is the S result when we subtract (or “net out”) liabilities from assets. This term highlights the fact that not-for-profit organizations and governments M that for-profit organizations do. We can think of do not have owners in the same way the organization itself or society as I the owner of the net assets of such organizations. When considering just one part of their overall finances, not-for-profit organizations and governments sometimes refer T to this amount as the fund balance. The fundamental equation for these organizations would H appear as follows: , Assets  Liabilities  Net Assets (or Net Position) or Assets  A Liabilities  Fund Balance Financial Management for Public, Health, and Not-for-Profit Organizations, Fourth Edition, by Steven A. Finkler, Thad D. Calabrese, Robert M. Purtell, and Daniel L. Smith. Published by Prentice Hall. Copyright © 2013 by Pearson Education, Inc. ISBN 1-323-02300-3 D The left-hand side of the fundamental equation lists the organization’s valuable resources, or assets. The organization A owns those resources. The right-hand side of the fundamental equation represents the sources of or claims against those resources. Outside creditors claim amounts ofMmoney that are owed to them. Legally, the first use of the organization’s assets is to repay creditors’ claims. Anything left after outsiders are paid is owned by the organization and its owners. The entire right side of the equation is 2 Equity is a word that refers to ownership or source sometimes referred to as its equities. of assets. Both creditors and owners 0 claim ownership or are a source of the assets of the organization. 0 The fundamental equation of accounting must always remain in balance. When 8 of the organization, they are referring to the fact people talk about balancing the books that this equation must be kept in balance as specific financial events are recorded. If T the equation is not in balance after a transaction is recorded, then an error must have occurred in the recording process. S By the same token, the balance sheet, which provides a representation of this equation at a specific point in time, must remain in balance. Generally, assets are shown on the left side of the balance sheet, and equities, or liabilities plus net assets, are shown on the right, as in Exhibit 10-1. The totals on both sides must be the same, or in balance. Sometimes assets are shown on the top half of the page and liabilities and net assets are shown on the bottom, as in Exhibit 10-2. Our three managers, Steve Netzer, Leanna Schwartz, and Dwight Ives, from the hypothetical example introduced in Chapter 1, would each be interested in the detailed elements of the balance sheet. At the end of the year, they will want to know if their plans and the implementation of those plans have left their organizations in a financially acceptable position. As managers, they want a solid understanding of the resources available to them as well as their obligations to outsiders and any restrictions that may exist Chapter 10 • Taking Stock of Where You Are: The Balance Sheet 317 Exhibit 10-2 Meals for the Homeless Statement of Financial Position As of December 31, 2013 Assets Current Assets Cash $ Marketable securities Accounts receivable, net of estimated uncollectibles of $8,000 55,000 Inventory 2,000 Prepaid expenses S M I T H , Total Current Assets Long-Term Assets Fixed assets Property Equipment, net Investments 1,000 $ 62,000 $ 40,000 35,000 8,000 $ 83,000 Total Long-Term Assets Total Assets 1,000 3,000 A Liabilities and Net Assets Liabilities Current Liabilities Wages payable D A M Accounts payable Notes payable Current portion of mortgage payable Total Current Liabilities Long-Term Liabilities Mortgage payable Total Long-Term Liabilities Total Liabilities Net Assets Total Liabilities and Net Assets $145,000 $ 2,000 3,000 2 0 0 8 T S 5,000 5,000 $ 15,000 $ 11,000 $ 11,000 $ 26,000 119,000 $145,000 ISBN 1-323-02300-3 on their use of the remaining net assets. The information in the financial statements has a critical impact on the actions managers must take for the following year. It also affects many decisions made by outsiders regarding whether to lend money, sell supplies, or make donations to the organization. We now look more closely at what makes up the assets, liabilities, and net assets of the organization. Assets We can define an asset as being anything the entity owns of value. Another view is that assets are anything the organization owns as a result of past transactions and events that will Financial Management for Public, Health, and Not-for-Profit Organizations, Fourth Edition, by Steven A. Finkler, Thad D. Calabrese, Robert M. Purtell, and Daniel L. Smith. Published by Prentice Hall. Copyright © 2013 by Pearson Education, Inc. 318 Part V • Reporting Results BOX 10-1 Note that the definition for assets includes “that will better enable it to meet its mission.” It does not say “that are consistent with the mission.” What if the Americans Against Lung Cancer Society owned shares of stock in a tobacco company? If the shares can be sold for cash, which can be used by the organization to carry out its mission-related activities, then the stock is an asset, even though owning that particular asset might seem to be contrary to the mission of the organization. Financial Management for Public, Health, and Not-for-Profit Organizations, Fourth Edition, by Steven A. Finkler, Thad D. Calabrese, Robert M. Purtell, and Daniel L. Smith. Published by Prentice Hall. Copyright © 2013 by Pearson Education, Inc. ISBN 1-323-02300-3 better enable it to meet its mission (see Box 10-1). This would include all items that will provide some future benefit or enable the entity to provide services to its clients. The list of assets on the balance sheet reflects the valuable resources owned by the organization. Some assets are easily identifiable. A respirator owned by the Hospital for Ordinary Surgery (HOS) is a valuable resource S that qualifies as an asset. The respirator allows the hospital to treat patients and generate revenues. We would clearly want to include the M respirator when we tally up the assets and report them on the balance sheet. The artwork on the wall in the I executive director’s office at Meals for the Homeless is also an asset, even though one might view its contribution toward achieving the T organizational mission as being much more indirect. To conduct business, and deal with suppliers and possible donors, the H executive director must have a presentable office. The painting on the wall contributes to ,that proper appearance, and it too will appear on the balance sheet as an asset. Some assets do not have a physical form or substance. If a taxpayer in Millbridge owes the town real estate taxes, those A taxes are classified as an asset referred to as a receivable. The general group of assets called receivables refers to amounts of money that other people or organizations oweD to the entity, generally because of goods or services that the entity has provided to them. A HOS has patient receivables. Because the entity must keep track of or keep account of how much money each patient owes, we often refer to the amounts owed in this M manner as accounts receivable. Receivables were discussed in Chapter 7. In the case of the hospital, these accounts receivable or patient receivables represent amounts the hospital expects 2 to collect in exchange for patient care that has been provided. The town of Millbridge would 0 refer to taxes that are owed to it as taxes receivable. The taxes represent charges the town makes for providing a wide range of services, 0 such as police, fire, transportation, sewers, and so on. Meals for the Homeless may have 8 a foundation for a grant and as a result may have fulfilled the conditions specified by grants receivable. In each case, the receivables represent the money the organization is T entitled to collect from someone else. Such receivables are valuable assets that would S generally be listed on the balance sheet. Some assets may be even less tangible than receivables. Meals for the Homeless may pay for an insurance policy to provide fire protection for its building and equipment. The insurance policy does not have physical substance, and if there is never a fire, the policy will expire without any payment to Meals by the insurance company. But the protection that the policy provides is valuable. The policy is referred to as an intangible asset. Accountants often refer to assets as being either tangible or intangible. Both types may appear on the balance sheet. However, some intangible assets do not show up on the balance sheet. Examples are things such as the entity’s good reputa ... Purchase answer to see full attachment