Revenues and expenditures; Notes to financial statement - Segment 3


We touched on the income statement, which is your second statement that must be submitted with your T3010. The balance sheet represents a snapshot of a period of time, as I mentioned. It shows all of the figures on that last day of the fiscal period. The income statement, on the other hand, shows a picture of the whole year. So it shows all of the revenues that came in and how those revenues were spent based on the expenditure categories that will be listed on the income statement.

The revenue categories, some common ones we have are your cash or gifts in kind that you've received as donations. Maybe you'll have anonymous donations as a separate line. If you receive any government grants or funding, you would have that as another line. Any revenue that you've earned but not yet collected that, again, would show up in the revenue section. Your expenditure category will reflect your activities, so it will be -- it will identify certain categories that will reflect the type of activities you are engaged in and it will also have some general categories, I'm sure, such as salaries, rent, mortgage and you may have travel. If you're a foundation, you may have a line for gifting to qualified donees. That is considered an expense and certainly specific to foundations, so that might be a separate expenditure category. The difference between revenues and expense is your net income or net loss. So if you have a net income, it's your surplus for that year.

We touched on the notes to the financial statements. So I talked a little bit earlier about the notes and that the notes provide context to the reader. When you read the balance sheet and the income statement, it truly is a summary of your financial position for that year. And what the notes to the financial statements do is provide additional context and explanation about different entries that have shown up in those statements. They assist the reader in gaining a better understanding of what your financial statements are reflecting.

There's considerable flexibility in the types of accounting methods that you can choose, so the notes provide you an opportunity to explain to the reader what accounting methods you have chosen and some of the decisions that the board have made. The accounting methods chosen should always appear as the first note to reader, so you'll list the accounting methods. But some of the other common notes that appear are the depreciation methods and the rates you're using to depreciate assets, any interest rates on investments.

Maturity dates are also a good place to put those are in the notes. Any potential liabilities. So, for example, say you had a lawsuit pending and all of your assets were frozen. So you would look -- until the outcome of the lawsuit is resolved, your assets are frozen. Then it will appear, obviously, in your expenses that you have no expenditures, so it will show as if you made no expenditures on your programs. The notes is the place to explain that. You would show this potential liability or this situation in the notes to your financial statements.

Another great note is 10-year gifts. If you've received a large gift that you must hold for a period of time, a minimum of 10 years, but maybe the gift has direction that you must hold it in perpetuity, that's another note. So it will show in revenue as a large donation, and then in the notes it will explain this donation actually must be held for a period of time. Essentially, you will include anything in the notes that will provide additional information to the reader to help them understand your financial statements.

So we move now to slide 11 and we reach our first question break.

So I have a note from the individual that is screening the questions that there are a number of questions related to the T3010. I know that the financial statements are so closely linked to the T3010 that we try to -- or we often ask a number of questions about the T3010 in this session. Unfortunately, this session is geared to financial statements, so we won't be answering any questions about the T3010. However, I invite you to watch the webcast that we have on the website about the T3010, or sign up for a future T3010 webinar and relay those questions to the presenter at that time.

If you need an answer right away, you can always call the 1-800 number that is at the end of the session and one of our client service agents would be happy to provide you with an answer to your question.

Okay, so question number one:

In my income statement, I listed the opening bank balance at January 1, 2009. Where on the information return do I record this?

So in this case, you wouldn't record the opening balance on the T3010. You only include your financial position at the end of the fiscal period for your bank account balance.

Do registered charities require a year-end audit?

I touched on this, but I'll reiterate, no. There's no requirement by the CRA to have your statements audited at the year end. We do recommend if your revenues are over $250,000 that you do get an audit. If you do not have an audit, we ask that the treasurer sign your financial statements before you send them in.

You mention that the public can request a charities financial statement from the CRA and you will provide them. Is the charity obligated to provide financial statements to the public if they are asked directly?

No. You have no obligation to provide financial statements to the public. But it is in the charity's best interest to be open and transparent with its donors. It helps you maintain a healthy donor base. You can always refer that donor to us or the individual who has asked you, and we will go through the exercise of providing those documents to them.

Okay. So we'll move now to slide 12, and you'll note on your slide that we've moved to the second element of the presentation, which is books and records. Keeping adequate books and records is an essential requirement for a registered charity to maintain its status -- its registered status. Financial statements, as we just discussed, form part of your books and records. So those are expected to be found in your books and records, but there are other documents you need to have on file. And that's what we're going to look at through the next few slides. So let's turn now to slide 13.

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