Question

Don, a friend of yours has asked you to help him understand the importance of financial statements for his new social venture. He wonders whether he should include preformat financial statements on his social venture plan. He comes to you for advice. Explain to him the importance of the three financial statements for social ventures. What are the key items your friend should be looking for in these financial statements? UTML Editore

Answer 1

Answer:

The three financial statements include:

1. Balance sheet

2. Income statement

3. Cash flow statement

Balance sheet of the social venture helps in determining the amount of assets that have been brought into the facility of the venture and their current position. It also helps in assessing the total liability of the social venture that it has created for carrying out the social work. it helps in determining the risks associated with the survival of the social venture and helps in making a suitable decision so as to mitigate this risks. It also determines the returns that the venture has generated as a result of carrying out the social activities.

Income statement of the social venture helps in determining the donations and receipts from the organisations and government as a part for helping the society and the operating expenses of the venture for serving the social issues of the society.

Cash flow statement will help the executives of the business in determining the total cash inflows and cash outflows so that they would be able to make strategies for better serving the society.

The key items that the friend would be looking in these financial statements are:

1. Fixed and current assets in the balance sheet so as to determine the capacity and strength of the organisations.

2. Short term and long term liabilities in the balance sheet so as to determine the responsibility of the organisation.

3. Distribution to venture partners and operational expenses and tax being paid from the income statement

4. Cash inflow from the donors and cash out flow in the provision of services from the cash flow statement.