Elements of financial statements; Assets and liabilities - Segment 2


There are two minimum financial statements that must be provided with the T3010 to the CRA. And that is a Statement of Assets and Liabilities, we commonly call that a Balance Sheet, and a Statement of Revenues and Expenditures, known as the Income Statement. Of course, there are other elements that could form part of your financial statements. There could be Cash Flow Statements, Statements of Retained Earnings. If you have audited financial statements, you'll likely have additional schedules attached to the back, and you would submit those to us, if, in fact, you have them. But the bare minimum is the Balance Sheet and Income Statement, and those are the two that we'll be discussing for the remainder of the financial statements portion of the presentation. In addition, you may have Notes, so Notes to the statements, and if you have those, we do ask that you send them in as well with your T3010.

We're touching on the balance sheet, the first of our two statements. The balance sheet is a summary of your financial information position at a specific point in time, the last day of the fiscal period. So if your fiscal period is January 1 to December 31, on your balance sheet you will represent the figures as of December 31st of that year. The balance sheet tells the reader about what the charity owns and what is owing to it, what the charity owes in terms of liabilities, and then an accumulated surplus or deficit, so the difference between your assets and liabilities.

Assets are objects, rights, claims, owned by the charity that have value and they're recorded on your financial statements at their dollar value. So you are to record those in the asset section at their dollar value. Generally, assets are separated into two categories. We have current and fixed. Current assets are readily convertible to cash, and the timeline that we use to differentiate between current and fixed is one year. So, if your short-term investments, for example, are maturing within one year, so one year or less, they are considered a current asset. Your bank accounts, of course, are very readily convertible to cash, so they are also considered a current asset, and any of your accounts receivables or inventories, because you're expecting within accounts receivable to be paid in a short period of time.

Fixed assets are your more long-term assets such as buildings, land. Long-term investments: things that are maturing in a time that exceeds one year. And those would be categorized under fixed assets. Remember if you are using credit to acquire an item, so if you buy something on credit, it's still considered an asset. So the charity still owns that item. You would record that item on the asset side under either current or long term or fixed, rather, depending on what the item is. And then you would show a liability for that on the other side of the balance sheet. Just keep in mind if you're using credit, it is still considered an asset.

And lastly, a quick note about the T3010B. Your capital assets are recorded at cost unless they're donated. If they're donated, they're recorded at fair market value. The reason why I bring up this distinction is that in your financial statements, in your balance sheet, you're going to record the asset in its dollar value. But in the T3010, you may reflect a slightly different value depending on whether or not the item was acquired by the charity or whether it was donated.

We talk about the other side of the balance sheet, which is your liabilities. Liabilities are your obligations to another organization or individual. For example, a bank loan, very straightforward liability. You borrowed money from the bank, you owe that back to the bank, and that's an obligation you have and it's considered a liability.

Liabilities, like assets, are separated into two general categories. We have current, so that's your short-term liabilities and long-term liabilities. Current liabilities are, like assets, paid off within one year. We still use that one year threshold to distinguish between current and long-term. So your accounts payable, anything that you owe to a vendor, for example, would be considered a current liability. Your deferred revenue, deferred revenue is where you've received a payment but you haven't yet provided the service. An example of this would be if your charity operates workshops, for example, and they pay you in advance for these workshops, so book your time and pay you to come. But you haven't yet actually delivered the workshop to the individuals. That's deferred revenue.

Long-term liabilities. A straightforward example of long-term liabilities is your mortgage. Most mortgages will not be paid off within one year, so they are categorized as long-term. The one exception of this is the portion of the mortgage due in the next year. So say you have a 25-year mortgage and you put that in the long-term liabilities, the amount that you owe, the portion you owe in the next year is considered the current portion of the long-term debt. So that actually sits in the current liabilities section.

 And then your difference between assets and liabilities is the net surplus or deficit. We hope that the assets are larger than the liabilities and that you have a surplus on that side.

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