After running these calculations OP determines it will send out $515 million in property tax bills. From past experience, it also knows it won’t collect a certain portion of those bills. After this first recording for depreciation expense, the value of the audiology equipment reflected on Treehouse’s balance sheet will be $18,250, or ($20,000 – $1,750). Some transactions affect only the asset side of the equation. For instance, imagine if Treehouse had purchased the audiology equipment with cash rather than on credit. Transaction 1 and Transaction 2 are good examples of financial activity that affect the balance sheet.

The Basic Financial Statements Financial Strategy for Public Managers

To illustrate, let’s look at the financial statements for the City of Overland Park, KS. Overland Park (OP) is a large suburban community just west of Kansas City, MO. Both an annual and 10-K report can help you understand the financial health, status, and goals of a company.

Assets + Deferred Outflows = Liabilities + Deferred Inflows + Fund Balance

This assumes it has a reasonably sophisticated way to measure how much space each cost center uses. Allocations by space can be contentious because not every unit uses space in quite the same way to accomplish its mission. For instance, most of the Food Protection staff spend most of their time out in the field inspecting restaurants. They report to the office at the beginning and end of the day, but infrequently during the day. This is quite different from the Animals and Pets center, where most of the staff spend most of their time in the office.

Governments also deliver goods and services whose operations are quite similar to what we’d find in the private sector. Examples include water utilities, golf courses, swimming pools, waste disposal facilities, and many others. These are known as business-type activities or proprietary activities.

About the Book

But for public organizations profitability has little to do with accountability. For instance, our conservation non-profit might accept donations from individuals in support of its conservation work. Same for in-kind contributions (i.e. donated goods and services) the organization receives in support of its mission. At a glance, three key features of Treehouse’s balance sheet stand out. First, its current assets far exceed its current liabilities.

  • An allocation basis is a cost driver that’s common to all the cost centers that incur an indirect cost.
  • If financial statements tell an organization’s financial story, financial statement analysis is the annotated bibliography of that story.
  • When we look at Net Investment in Capital Assets we’re forced to ask, what’s the “book value” of a capital asset.
  • The remaining $8 million will become available later, so for now, it’s considered deferred revenue.
  • You can also find detailed discussions of operations for the year, and a full analysis of the industry and marketplace.
  • This book is our best attempt to weave that material together in a fresh, robust, concise, and immersive way.

The text is loaded with accounting terms which are in bold but there needs to be an index. As noted above, the figures are at times small and hard to read and would not work in print. The financial statements are also blurry in many spots, not to the point of not being readable but somewhat distracting. Additionally, some of the use of color in blocking text and in the figures could be a barrier to accessibility.

Book Title: Financial Strategy for Public Managers

While policy changes represent improvements on the margin, they do not resolve plan insolvency. Governments will need to contribute at or above ARC to ensure retirement systems are sustainable. A The Basic Financial Statements Financial Strategy for Public Managers sluggish economic recovery has made this even more difficult as politicians must choose between funding retirement benefits, a historical cost, or paying for schools, roads, and public safety.

For governments, the solvency ratios are focused entirely on debt and other long-term obligations. Governments can borrow money that won’t be paid back for decades. That’s why these solvency ratios focus on how much money a government has borrowed in both its governmental and enterprise funds, and its ability to pay back that debt. Bond investors, particularly for public utilities, often stipulate how much coverage a government must maintain at all times. Coverage ratios are usually expressed as operating revenues as a percentage of interest expenses.

Assume that Treehouse staff deliver the program and then send the school district a bill for their services. Treehouse used a lot of staff time, supplies, travel, and other expenses to produce this program, but they might not get paid for the program for several weeks. Grants and other contributions are reported as temporarily restricted support if they are received with donor stipulations that limit the use of the donated assets. Temporarily restricted support is reported as unrestricted if the donor restrictions are met in the same reporting period. At June 30, 2015, temporarily restricted net assets are subject to time restrictions. While financial ratios can provide us with useful metrics, always start off with a quick review of the financial statements.

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