Guide to Reading Audited Financial Statements
The Diocese of Lansing’s annual financial statements are prepared in compliance with the standards set by the Financial Accounting Standards Board. Compliance with these standards requires the reports to contain terms and concepts that may be unfamiliar to some readers. This brief guide is intended to help readers of the report familiarize themselves with these terms and concepts.
The purpose of a balance sheet is to provide a listing, as of a specific day, the amount of things that we have or are owed (assets), amounts that we owe to others (liabilities) and what is left over (net assets). A balance sheet balances when the amount we have equals what is owed and the amount left over. In accounting terms, assets equal liabilities plus net assets. In the net asset section, the amounts are divided according to restrictions that have been placed on gifts by the donors. There is a large amount of temporarily restricted net assets in the annual report that represent the pledges and payments made by donors to fund the diocesan central services in the next year. Also, included in this amount are gifts that have other restrictions such as Charitable Remainder Trusts. By showing this as a separate amount, the diocese is demonstrating it is a good steward in the management of the DSA dollars and of the donors intent.
The statement of activities and changes in net assets is commonly referred to as the income statement and tells a story of what happens during a period of time. There are many sections to this report. The first part deals with what we received during the year (income) and what we received in a prior year that we are now able to spend (net assets released from restrictions). The second part deals with the expenses we have during the current year. The final part deals with the changes in the restricted funds.
The financial statements also include a cash flow statement. This statement reconciles the change in cash from year to year. It is most often used by creditors to see if the organization has an adequate cash flow to pay its bills.