1. Contribution Net Income Overview
Understanding Your Income
Statement & Balance Sheet
Nataliya Ongstad & Pamela Lindorfer, 3M
3M Confidential

2. Income Statement/Statement of
Activities
• The purpose of the income statement is to show
managers and investors whether the company
made or lost money during the period being
reported.
– Represents a period of time (Month, year..) whereas the
Balance Sheet is at a point in time
– Based on an accrual system (current standard practice for
nonprofits) recognizes income when it’s promised and
expenses when they’re obligated.
• Insight about Income Statement can be gained by
comparison to relative data points such as last year,
budget, % or revenue, trailing 12 month average…..

3. Bikes for Kids Income Statement

4. Bikes for Kids Income Statement
2011
2012
Purchases
Purchases Income
Income
33%
47%

5. Questions about the Income Statement
• Is there an operating surplus or deficit?
• Are items in line with budget and/or last year? ($
and/or % of revenue basis)
• Do the numbers align with what is understood
about the business? (Wages are up due to the
addition of a new manager)
• Is the recording in compliance with the
expectations of the Board and organizations that
are contributing to the nonprofit?

6. Balance Sheet/Statement of Position
• Snapshot of what an organization is worth at a given time
• Assets = Liabilities + Net Assets
– Assets- economic resources owned by an organization that can be
converted into cash
– Liabilities- any financial obligations that an organization has to fulfill
– Net Assets- Can be in three categories: unrestricted, temporarily
restricted and permanently restricted
• Similar to the Income Statement, insights about the Balance
Sheet can be gained by comparing items to relative
comparison points.
– Assets – Liabilities (Can we pay our bills?) Ratio (Assets/Liabilities)
– Bike Inventory/Assets – How much of our value is inventory?
– Contributions receivable (BS)/Total Contributions (IS) – How quickly do
we collect on our receivables?

7. Bikes for Kids Balance Sheet

8. Questions about the Balance Sheet
• Do the cash and cash equivalents exceed the
accounts payable? i.e. Can we pay the bills?
• What do our balance sheet metrics indicate? Are
we financially healthy?
• Do the total current assets exceed the current
liabilities?
• Is the change in net assets negative or positive?
• Is the number shown for total net assets a
positive or negative number?

9. Additional Resources
• Minnesota Council of Nonprofits Website
www.minnesotanonprofits.org/
• Guide to Non-profits From the Trenches Sheila G.
Shanker, CPA
• Nonprofit Bookkeeping & Accounting for
Dummies, Sharon Farris
• MAP for Nonprofits Website
www.mapfornonprofits.org

10. Contribution Net Income Overview
Definitions
• Accrual – Recognition of cost when the work is performed,
compared to when it is invoiced
• Depreciation – Recognition of the cost of an asset on the
Income Statement spread out over the assets useful life
• Unrestricted Net Assets- When a donor doesn’t put any
restrictions on the contribution
• Temporarily Restricted Net Assets- When a donor has a
restriction on the contribution (other than to be held in
perpetuity)
• Permanently Restricted Net Assets- When organization
receives a contribution where donor stipulates that it must
be held in perpetuity (i.e. only interest on principal can be
used by the nonprofit)