Revenues and Expenses incurred by an organization are measured on ‘accrual basis’ concept.
According to accrual concept, revenues is recorded when it is earned, and expenses are recorded when they are incurred and is not necessarily the same as the amount of cash received or paid out.
Thus there might be an expense which necessarily does not result in immediate cash outflow. (say goods purchased on credit). Similarly there might be instances of income, which does not result in immediate cash inflow. (say goods sold on credit)
Because of this, nonprofit organizations prepare a third statement—the cash flow statement (also called the statement of activity) to record and analyze changes in cash/liquidity position of the organization. The cash flow statement reviews and records all inflows and outflows and helps to assess the cash balance available with the organization to meet its day to day liquid cash requirements.
While the operating statement records all income and expenses incurred, whether received or not, the cash flow statement records all transactions which result in immediate cash inflows or outflows.
Being short term in nature, the cash flow is prepared for a month wise period as opposed to budgets or operating statement which are prepared for an annual tenure. An annual budget is not concerned with the specific time of the expenses but rather the expenses over the entire year whereas cash flow helps assess adequacy of cash for immediate usage.
What follows is a sample cash flow worksheet of a typical nonprofit organization for 4 months.
Cash flow worksheet for XYZ nonprofit organization from January to April, 20XX.
| January | February | March | April | |
| Opening Cash | ||||
| Expected Receipts | ||||
| Client Fees | ||||
| Meyer Grant | ||||
| Government Grant | ||||
| Sales | ||||
| Donations | ||||
| Other Grants | ||||
| Receipts Total | ||||
| Loans Received | ||||
| Total Cash Available (A) | ||||
| Expected Disbursements | ||||
| Net Payroll | ||||
| Federal Withholding &FICA | ||||
| Sate Withholding | ||||
| Workers Compensation | ||||
| Unemployment | ||||
| Health Plan | ||||
| Rent | ||||
| Utilities | ||||
| Office Supplies | ||||
| Insurance | ||||
| Postage | ||||
| Program Supplies | ||||
| Printing | ||||
| Other | ||||
| Loan Repayments | ||||
| Total Disbursements (B) | ||||
| *Ending Cash (A – B) |
*The ending cash (A-B) could be a positive number (surplus cash) or negative number (cash deficit) for a given month.
The by projecting cash inflows and outflows in the fashion mentioned above the management can decide how to deal with surplus cash or how to make for the deficit in a given month. The organization can identify and control areas that are causing the cash deficit or plan out for meeting those deficits by generating cash outflows.
