The Basic Financial Statements Financial Strategy for Public Managers

Tax and expenditure limits (or TELs) restrict the growth of government revenues or spending. While there are no two TELs that are alike, they all share key elements. At the state-level, TELs are either dollar limits on tax revenues or procedural limits that mandate either voter approval or a legislative super-majority vote for new or higher taxes.

• In fact, that preference is so strong it’s called the historical cost rule of accounting.
• Non-profits’ policies to that effect state that a pledge is uncollectable after a certain number of days past the close of the fiscal year, or if the donor provides documentation that the pledge is cancelled.
• But keep in mind that long-term assets like equipment donated for a specific programmatic goal also tend to appear as temporarily restricted net assets.
• Tax rates are important, but some of the most consequential decisions about property taxes are about exceptions to the base-rate relationship.
• However, keep in mind the relationship between fixed and variable costs.

She resigned from her position at a local nonprofit and rented office space, signing a one-year $2,500 per month lease, with rent due on the first of each month. At that meeting, she briefed Duncan on her initial thoughts for PASS’s operational structure including Duncan serving as the chair of the Board of Directors. As he wrote her the check for $100,000, Duncan noted that there would be a conflict of interest, as he was the initial and sole investor in PASS.

Book Title: Financial Strategy for Public Managers

Your organization’s financial statements are valuable assets you can use to make strategic decisions and manage your team. If you’re unsure of where to begin, brushing up on your financial literacy, networking with finance professionals, or taking a finance course are great places to start. Bolstering your financial knowledge can enable you to make the best use of the resources available to you and become a finance-driven manager.

Small changes in interest rates can mean big differences in the cost to deliver public projects. That’s why it behooves public managers to know what drives interest rates. On September 20, 2014 DOJ opened a formal civil rights investigation. The report from that investigation was released in March 2015.

Financial Position and Financial Strategy

If the organization delivered or received a good, then the transaction likely affects assets, revenues, and expenses. Whether or not the transaction affects a liability has to do with whether a payment was made or https://quickbooks-payroll.org/ received for those goods or services. Keep in mind also that accrual accounting assumes the organization is a going concern. That is, it assumes the organization will continue to deliver services indefinitely.

• What’s less clear is whether it can continue that trend into the future.
• Ideally, cash from operating income should routinely exceed net income, because a positive cash flow speaks to a company’s financial stability and ability to grow its operations.
• Principal among them is “other post-employment benefits” or OPEB.
• She received a check from the foundation in April for $25,000.

For Treehouse, we see a reconciliation for inventory of $56,402. Since the reconciliation is asking us to increase net assets, we can assume this means inventory decreased. Again, if inventory decreased, then cash increased, so we want our reconciled net assets to be larger as a result. The Basic Financial Statements Financial Strategy for Public Managers That’s why Treehouse “added back” this inventory reconciliation. Recall that a big part of Treehouse’s mission is operating a thrift store for children in foster care. This inventory reconciliation is likely because it sold a particular product to a customer in its store.

Bad Debt

If those figures are predictable, we can assume the current indirect cost rate for nurses is 17%. For counselors the direct costs are a bit higher at 86%, for an indirect cost rate of 14%. Some organizations compute indirect cost rates based only on direct labor costs. In that case the rate for nurses would be the indirect costs divided by just the direct labor costs, or (($10,456+$4,799)/$67,108, or just under 23%.

• She was also required to take out insurance on the car, with payments of $540 per quarter due in advance every three months, starting on September 1.
• Municipal governments in the southeast have comparatively limited powers and responsibilities.
• The vehicle would allow YVMDC staff not only reach more clients but eliminate existing lease agreements at satellite clinics.
• Both states have roughly the same population, but one state’s government spends almost twice as much per capita.
• Others such as the example of Ferguson and its reliance on the police force and financing the government through fees will remain relevant and timely.
• If inflation is on the rise, then businesses will be less willing to spend money on new buildings, equipment, and other capital investments.

Bonds typically have a longer maturity than loans (i.e. the organization pays them off over a longer time). Moreover, they are always paid back at a fixed rate of interest, whereas some loans, have variable rates or floating rates that fluctuate over time. Notes payable are short-term loans, usually less than 18 months. A line of credit is an agreement between a public organization and a bank that allows that organization to borrow money on short notice, at a pre-determined interest rate. A line of credit can be especially useful if an organization has unpredictable cash flows, or if it is considering taking on a large capital project. If Treehouse buys $500 of supplies, it will record those supplies on its balance sheet at the $500 it cost to acquire them.

Measuring Full Cost: The Six-Step Method

Differential cost accounting – sometimes called marginal cost analysis – is the process of determining how the full cost of a good or service changes when we deliver more or less of it. Good financial management requires careful attention to both. Chang was initially the only employee, serving as Executive Director, sole tutor and chief fundraiser. At the initial board meeting, the board voted to pay a salary of $3,500 per month and to contribute an additional $175 per month toward her health insurance. She also presented preliminary estimates for operating expenses.

These folks are not particularly concerned with how government tax dollars are different from charitable donations or business profits. If money can move an organization closer to its goals, regardless of where that money comes from, why not add it to the mix? They don’t think of financial contributions as a way to divvy up credit for a program’s success. They want to know how their money was spent, but far more important, they want to know what their money accomplished. Internal service funds are designed to be self-balancing, so they are also accounted for on the accrual basis and presented on the Combining Statement of Net Position.

Also keep in mind that Animals and Pests needs more “emergency capacity” or “surge capacity” than the other two departments. So if an even distribution is not the most appropriate, then what is? With careful attention to cost accounting methods we can begin to address these and other questions. YVMDC had borrowed $450,000 to finance the clinic’s current building.