Change in Net Assets
What Does Change in Net Assets Mean?
Change in net assets is an important metric for non-profit organizations, showing the change in net assets during the accounting period.
Net Profit v’s Change in Net Assets
Net Profit
A for-profit organization will prepare an income statement at the end of each accounting period.
All the information for this report comes from the income and expense accounts.
The difference between income and expenses shows net profit for the period.
Net Assets
By contrast, a not-for-profit organization prepares a statement of activities at the end of each accounting period.
Some of this report’s information comes from the income and expense accounts.
Expense accounts include things such as fund raising expenses, management, and administration.
Income accounts show revenue generated from such things as contributions, fees, grants, investments etc.
Unlike an income statement, the statement of activities includes other accounts, as well.
It shows net assets at the beginning of the accounting period.
Net assets is the difference between assets and liabilities.
In other words, it is the difference between what the organization owns and what it owes.
The statement of activities will also show any net assets released from restrictions.
With non-profit organizations, donors make donations.
These donations are held as an asset of some kind, such as money in the bank.
Often, a donor will place a restriction on how their donation is to be used.
Most of the time, these restrictions are time based.
During the accounting period, some of the restricted assets may fall due for release.
Once released, the assets become revenue for the organization.
As such, the released assets need to be shown in the statement of activities.
All of this activity will change net assets over the period.
When complete, this will be reflected in the statement of activities balance.
It’s balance will include net assets at the beginning of the period.
It will show any increase in net assets due to releases from restriction.
And it will show any increase in net assets from operating profit.
© R.J. Hickman 2020