Help, a General Member Meeting: Financial Report Edition!
Help, a General Member Meeting: Financial Report Edition!
Hello dear readers! Coming 11th of March, a General Member Meeting will be held to discuss the semi-annual financial report of our association. This report will give an insight into what’s been happening with Proto’s financials so far this year. However it can be hard to understand a financial report, if you have never seen one before. That is why I am writing this news article! My aim here is to help you understand the structure of a financial report, and where you can find what information. If you also want to find out how a General Member Meeting works in general, you can read our article “Help, a General Member Meeting”.
First things first: Why should you read a financial report? In short, a financial report can show you what Proto is doing with your money. After all, you pay a membership fee to be part of this association, you are the reason why we receive money from sponsors, and you might sometimes pay a fee to join an activity. If you are curious about what we actually use this money for, taking a look at a financial report can get you pretty far. Next to that, if you are interested in or involved in a committee, it can be very useful to take a look at this report and see what the treasurer believes is going on for all of Proto’s committees.
In the rest of this article I will explain to you how to read a financial report. If you are interested in the general financial health of Proto, make sure to take a look at the “The Balance Sheet” part. If you, however, are only interested in what exactly Proto has been spending money on, you can also skip this part and go straight to “Expenses & Income”.
The Balance Sheet
The first thing you will encounter after the introduction of the financial report, is the balance chapter. You will find a big table in this chapter, which aims to give a clear overview of the financial health of Proto at specific moments of time, usually the beginning of the year and, depending on which financial report you’re reading, the half year point or end of the year. This table will be split up into two parts: Assets, and Liabilities. Both of these sides will show information about so called “accounts” in Proto’s bookkeeping. These accounts are used to make it easier for the Treasurer of our association to keep track of where the money is going; these different accounts all have a number and a name which identifies them. An example:
For each account, the table shows the amount of money in it at the beginning of the year, and another moment in the year. Explanations can be found underneath the table for each account, to tell you what it’s meant for and if there is anything noteworthy going on with the amounts of money.
Let me explain why this table is structured the way it is; it starts with explaining what assets and liabilities are:
The standard definition of “assets” in a financial context is the following: ‘Things that are resources owned by a company, and which have future economic value that can be measured and can be expressed in a monetary value”. A simpler way of expressing this is that assets are resources that either are money, or you could receive money for. So, for example, the amount of money in your bank account is an asset. But next to that, the value of the entire stock of the OmNomCom is also an asset; if all of it would be sold, we’d receive money for it. The amount shown next to “1501 - Stock OmNomCom” is what we’d expect to get if we do that.
In S.A. Proto’s balance sheet, you’ll often also see some reservations on the Assets side. These reservations are meant to “carry” an amount of money from one financial year into the other. For example, an asset reservation can be made when costs for a certain activity are made in one financial year, but participants fee will come in in the other financial year.
Liabilities are often defined as being “future sacrifices of economic benefits that the company is obliged to make.” This is a little easier to grasp than an asset: liabilities are things that we, at some point in the future, have to spend money on. The “2210 - Expenses to be paid” is a good example of this; this account includes all statements of expenses and/or invoices that have been entered into the bookkeeping software already, but haven’t been paid yet.
Next to that, you usually also find reservations on the Liabilities side of the balance sheet. On the contrary to reservations on the assets side, a liability reservation is made when there is an income coming in one financial year, that will be spent in another financial year. For example, each year we spend some budget and put it into a reservation for the next Lustrum. This money isn’t actually moved to any separate bank account; but, by doing this, the treasurer of the Lustrum board doesn’t need to spend a very big part of their budget on the Lustrum, because the years before that a part of the budget has been reserved for this. We expect to eventually spend this money for organising the Lustrum, meaning that this is a liability reservation.
Owner’s Equity & Result Current Financial Year
On the Liabilities side of the balance sheet, you will also find two accounts called “Owner’s equity” & “Result current financial year”, or something similar. These are actually not liabilities, but are still on this side of the balance sheet for a specific reason. The definition of ‘Owner’s equity’ is the following: owner’s equity is the owner’s investment in a business, plus all income made since the start of the business. In this case, we view S.A Proto as our business. Every year so far in Proto’s history, there have been certain incomes and expenses; these together determine the result of the financial year. If, at the end of the year, we’ve gotten more income than expected while still making the same expenses, we’ll get a positive result. After the end of the financial year, this result is added to the Owner’s Equity. Proto itself doesn’t have an owner to whom this ‘income’ goes; instead this income functions as liquidity for our association.
So, the “Result current financial year” would be the result of the year if the year would end on the 31st of January in the case of a semi-annual report, or on the 31st of July in the case of a annual report. When you’re looking at the semi-annual report, this result may be a pretty big negative number. Why this number is like that, you can discover by reading the rest of the report! It usually isn’t something to worry about, because halfway through the year we have neither received all the associations income yet, nor have all big activities we organise (such as a trip) been fully settled yet.
So, to finish off this part about the balance sheet: the total value of all our assets is equal to the value of all liabilities + owner’s equity (also including the result of the current financial year). This is called the “accounting equation”, and should be upheld for every business. This is why we put the owner’s equity and result of the current financial year on the liabilities side of this sheet. You can find the totals for each side at the bottom of the table, and both sides should be equal.
Expenses & Income
Hoorah! You have made it through the balance sheet! Luckily, this is by far the most complicated part of the financial report, and understanding the rest of the report will require a lot less financial definitions and reasoning. Where the balance sheet aims to show you the state of S.A. Proto’s financial health, the rest of the report focuses on explaining what the “Result current financial year” actually exists off, and what the association has spent money on and gained income from so far.
It starts off with an overview table of all the different kinds of expenses and income together, in order to calculate the result of the current financial year. Other chapters of the report will go more into detail about most of the entries in this table.
Besides the names of the different entries in this table, the first column you’ll encounter will likely be called “Budgeted”, or something in that vein. The amount shown here is equal to the amount determined in the budget plan made at the beginning of the academic year. It is added to these reports to be a point of comparison: ‘Hey, at the beginning of the year, this is what we expected to spend/receive on this’. Next to this column, you’ll find the amount spent/received in these different categories so far. This, again, is either at the half year point or the end of the year. If you are looking at a semi-annual report, you will find another column next to this, called the ‘Forecast’. This is a new prediction for what the amount spent/received in these different categories will be at the end of the year. At the bottom of the table, you can find the current result of the financial year, and in case of a semi-annual report, also the forecast for the result at the end of the financial year.
The other big tables in the rest of the financial report will follow a similar structure. You’ll be able to find the number and name of different accounts, and next to it what was budgeted for that account in the year’s budget plan, what has been spent on it so far, and depending on the kind of report, a forecast for the end of the year. Next to that, a percentage is also included. This percentage represents what percentage of the budgeted amount has been spent so far, so you don’t need to make calculations to gain that kind of insight yourself. For every account, an explanation is provided underneath the tables, to hopefully make it clear to all readers what the purpose of the account is, and for any remarks regarding the numbers.
So, what now?
Now you can hopefully read through any (semi-)annual report that will be released in the future! You can take a look at the semi-annual report that has been released for the coming GMM, and if there are any weird numbers you want a more thorough explanation for, that you think other people also should hear, bring your questions to the GMM! If you find any spelling errors or minor mistakes, you can email them to me at firstname.lastname@example.org. Next to that, if you can’t make it to the GMM, but still have a question, all you have to do is ask me. I am always willing to try and help you understand, and will hear any feedback you have for me.
Hopefully until the GMM!
With kind regards, Sanne Bouman
Treasurer of Board 9.0