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Assets, liabilities, and net assets. If you’ve ever looked at a balance sheet and gone, “What is this?” this one’s for you.
Assets are what you own. That includes things like cash in the bank, a costume you bought, or a laptop for editing.
Liabilities are what you owe. Credit card balances, unpaid invoices, reimbursements, those all count.
Net assets, sometimes called equity, is what you have left over once you subtract what you owe from what you own. It’s what you’d be walking away with if you cashed out today.
Not everybody keeps track of these things closely, but if you do, you get a much more accurate picture of how you’re really doing.
Having only a little cash in the bank feels different when you have a big grant payment on the way versus having the same small balance with nothing coming in.
For example, imagine you have $2,000 in the bank, $500 on a credit card, and a $5,000 grant payment that has been awarded, but hasn’t yet arrived. If you only looked at the cash, you’d think you’re broke. But, factoring in liability and that receivable grant, your actual position is much stronger.
This helps you, your board, your funders, or collaborators understand how stable your org or project really is.
What is an asset, liability, and net asset?
All of these terms are categories for understanding your resources and obligations.
Assets are tangible resources that you own, like cash, money that’s owed to you, or equipment you can sell.
Liabilities are things that you owe to other people in the course of doing your work, like bills and credit card balances.
Net assets are what is left over when you subtract out all your liabilities from all your assets. Net assets represent what you’re “worth” — that is, what you really have available to use.
What goes into assets, liabilities, and net assets?
Kinds of assets you might have include:
- Cash (physical cash in a tip jar, cash in the bank)
- Space (e.g., if you own a building or piece of land)
- Equipment (a screen printing machine, sewing machine, laptop computer)
- Inventory (e.g., merch you sell at shows)
- Receivables (money owed to you that you will receive in the future)
You also have intangible assets, like relationships with community, your health, or your ancestors’ wisdom, but we can’t put a dollar value on them, so we don’t list them on the Balance Sheet.
Kinds of liabilities you might have include:
- Credit card balances and short-term loans
- Accounts Payable (bills and invoices you’ve received from people or companies that you haven’t paid yet)
- Income tax you owe but haven’t paid yet (e.g., from money you got paid as a contractor)
- Vacation time employees have earned but not used yet
- Money you’ve received for work you haven’t done yet (“deferred revenue”, e.g., a cash advance on a contract for performance/artist fees)
Kinds of net assets you might have include:
- Unrestricted net assets (e.g., earned income like ticket sales or workshop tuition, contributed income like donations or general operating support grants)
- Donor-restricted net assets (e.g., project grants, matching grants)
(See also: All About Restricted and Unrestricted Funds).
Where do I find my assets, liabilities, and net assets?
If you’re using bookkeeping software and are up-to-date with your transactions, you can run a report called a Balance Sheet (aka Statement of Financial Position). The whole purpose of the Balance Sheet is to organize your money into assets, liabilities, and net assets. Note: because bookkeeping software is designed with for-profit accounting in mind, the balance sheet will sometimes say “equity” instead of “net assets”, unless you rename the categories yourself.
If you’re using spreadsheets to track your money, you will need to do some more manual work to make a Balance Sheet. You’ll need to count up what you have as of the date you’re interested in (e.g., the end of last month, or after your end-of-year fundraising campaign) in each category and line them up together in a list. You can use the template below to get organized.
Sample Download
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