Making sense of the year-end financial statement

INTERPRETING FINANCIAL NUMBERS so that they give us an informative picture of our situation is not easy. Having belatedly seen the reports from the most recent fiscal year, I notice that our congregation’s treasurer has made further refinements, compared to previous year’s reports. 

It’s challenging to track the relationship between the capital income/expenditures and the operating income/expenses. Operating income/expenses come and go within a single year. In contrast, the capital can accumulate over more than one year; and conversely several years’ worth of accumulated capital can be spent in a single year. 

The trick is to display those capital spring tides in a manner that sets them apart from the more regular, daily ebb and flow of the operations budget.

Below the jump, this post discusses two aspects of financial reporting where there still seems to be room for improvement.

Two suggestions for summary reporting

The following two suggestions apply to the 1-page summary version of the year-end financial report. They have countervailing impacts on the reported bottom line.

#1

Separate out both the capital income and the capital expense.

In the summary, the expenditures made from the Capital Improvements Fund have been removed. Yet at the same time, the income from #6180 Capital Campaign that were credited to that fund have been included. 

A more consistent treatment of the capital income/expense category would have reduced the reported bottom line (net income) of the operations budget by nearly $28K.

#2

When subtracting out capital expenses from operations expenses, include also the expenditures in the Maintenance Fund that qualify as capital improvements. 

Last year, capital improvements were paid for in part from the Maintenance Fund (MF), for two reasons. First, the treasurer’s express preference was to avoid spending from the Capital Improvements Fund (CIF) except for what we can call prototypical capital improvements. That is, not expenditures for assessing a problem and deciding what needs to be done about it, but only actually fixing it. 

The second reason that capital improvements were paid from the MF is that funds accumulate there more quickly than in the CIF. Monies were simply available in the MF to be spent when urgent restoration work was being undertaken, but not in the CIF.

Checks written from the MF for tasks that qualify as capital improvements (per the IRS definition) totaled $14,054.

Thus a fuller accounting of all capital improvement expenditures would have improved the reported bottom line (net income) of the operations budget by $14K.