Treasury Function: Cash,
Investments and Cash
Flow Statements
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Distinguish among the types of cash and
investment instruments
Identify elements of an Internal Control
System over Cash
Understand the differences between cash vs.
accrual basis of accounting
Identify what regulations govern investments
of a NPO
Describe how investments are reported on a
Balance Sheet with related disclosures
Sketch out an Investment Policy
Analyze a cash flows statement
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Identify what you have by:
– Cash
– Cash equivalents
– Investments
– Compensating Balances
Where is it located?
Who has access to it (and is authorized to
deposit and withdraw)?
What is the interest rate (current and
trend over time)?
What are the service charges (current and
trend over time)?
What is the Balance as of xx-xx-xx?
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Coin
Currency
Checking accounts (demand deposits)
Money orders
Certified checks
Cashier’s checks
Bank drafts
Savings accounts (bank has the right to demand
notice before withdrawal)
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Definition: Short-term, highly liquid
investments that are readily convertible
to known amounts of cash, and so near
their maturity that they present
insignificant risk of changes in interest
rates; generally investments with
maturities of 3 months or less.
– U.S. Government Treasury Bills (91 to 182 day
maturities) sold in $10,000 denominations at
weekly government auctions
– Commercial paper – short term notes issued
by corporations with good credit ratings;
issued in $5,000 and $10,000 denominations.
– Money Market funds
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◦ Commercial paper (investments in corporate
debt with maturity of 3 to 12 months)
◦ Certificates of Deposit (CDs) – formal evidence
of indebtedness, issued by a bank, subject to
withdrawal under specific terms; issues in
$10,000 and $100,000 denominations,
maturing in 30 to 360 days
◦ Money market savings certificates issued by
banks and savings and loan associations in
denominations of $10,000 or more for 6
month periods (6 to 48 months); interest rate
is tied to the 26-week Treasury bill rate
◦ U.S. Treasury Bonds
◦ U.S.Treasury Notes
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Equity securities – common stock
Equity securities – preferred stock
Corporate bonds
Municipal debt securities
Convertible debt
Land contracts held as an investment
Mortgages held as an investment
Derivatives – financial instruments whose
value is derived from the value of some
underlying assets, such as stock, bonds,
or commodities – or is tied to a basic
indicator, such as interest rates or the
Dow Jones averages.
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Cash that is legally restricted – so separately
classed as a deposit
Cash under an arrangement that is without
legal restriction – so it is shown as cash but
with note disclosure
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Operating Revenue
◦ Providing services or selling goods
 Could be paid when revenue is earned or a collection of
accounts receivable from revenue provided in past
periods.
◦ Membership dues
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Contributions or grants
Nonoperating Revenue
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Borrowing
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◦ Gain on sale of long-term assets (capital assets
or investments)
◦ Investment income (interest and dividends)
◦ Short term loans from Bank (notes or line of
credit)
◦ Long-term debt (notes payable or bonds)
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Is your cash safe?
◦ Lock up petty cash
◦ Two signatures on checking accounts
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Budget for cash needs (daily or monthly)
Use Bank “sweep” accounts to earn interest
on excess cash and borrow to meet shortterm needs
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Are the accounting records over cash and
investments reliable?
◦ Reconcile the bank statements monthly – by
someone other than the person responsible for
writing checks (in a small organization, the Board
Treasurer can receive the bank statements directly
rather than the Executive Director).
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Both provide important information
◦ Balance Sheet shows the balance in the cash,
investments, receivables, other current assets,
payables, other current liabilities at the end of
each year.
◦ Statement of Activities shows the change in
revenues earned and expenses incurred
without regard to whether cash was received
or paid
◦ Statement of Cash Flows reports on the
reasons that cash changed during the period.
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Consider a one-page spreadsheet that
shows Cash Basis Budget for each month
of the year, with a section for Accrual
Adjustments at the bottom of the page
◦ Show each month of the year as a column
◦ Start with beginning cash balance
◦ Show enough detail of Cash Receipts and
Disbursements as necessary as rows
◦ Draw totals to ending cash balance for each
month
◦ Then show those cash receipts and
disbursements that affected receivables and
payables at the bottom of the page.
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Valuation and Nature of Investments
Investment risks and derivatives
Details of Mortgages, Other Loans, and Lease
Commitments
Amount of Unconditional Pledges Due in 1
year, 1 to 5 years, and > 5 years (SFAS No.
117)
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Uniform Prudent Investor Act of 1994 (see
update)
Sample Investment Policy
Boardsource books and training seminars
www.boardsource.org
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Reporting Investments
SFAS No. 124
• Mark equity investments that have readily determinable
values and all debt securities to fair value.
• Report realized and unrealized gains and losses and
investment income in the Statement of Activities.
• Report income and gains and losses as changes in
unrestricted net assets, unless their use is restricted by
the donor or legally restricted by state law.
• Similar to SFAS No. 115 for businesses and GASB
Statement No. 31 for governments, but simpler.
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Newspaper or trade journal
Quotes from recognized exchanges (NYSE,
AMEX, NASDAQ)
Pricing services
Broker quotes
Custodian or investment advisor
Pricing matrices
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Investments
 Donors may stipulate that a portion of
appreciation is to be permanently restricted
to maintain the purchasing power of the
endowment.
 If a donor is silent as to losses, losses
reduce unrestricted net assets if the net
appreciation requirement has been reached,
otherwise temporarily restricted net assets.
 SFAS No. 124 requires extensive disclosures
regarding investments and related income.
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Most states have adopted some version of the
◦ Uniform Management of Institutional Funds
Act (Act 157 of 1976)
◦ Uniform Prudent Investors’ Act (1994)
which describe standards of care, portfolio
theory, and delegation of investment
authority.
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For governmental entities, Michigan has
◦ Investment of Surplus Funds of Political
Subdivisions (Act 196 of 1997 – Amendment
to Public Act 20 of 1943 – Basic Investment
Policy
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Example:
“Goal is to optimize invested funds while
maintaining a safe amount of risk and meeting
the fiduciary responsibility assumed by the
organization.”
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Display
◦ Realized Gains and Losses (from sales of assets)
◦ Unrealized Gains and Losses from changes in fair
value)
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Disclosures
◦ Methods and assumptions used to estimate fair
value
◦ Policy to determine investments carried at
amortized cost
◦ Involuntary participation in an external pool
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Cash flows from
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Operations (look on statement of
activities)
Investing Activities (changes in
long-term assets on the statement
of net assets)
Financing Activities (changes in
long-term liabilities on the
statement of net assets)
Net Increase (Decrease) in Cash
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SFAS No. 95 was amended to extend coverage
to not-for-profit organizations as well as forprofit businesses.
The indirect method or direct methods (with a
reconciliation) may be used. This method refers
only to the “Operating Section”
Unrestricted gifts are included with operating
activities.
Restricted contributions given for long-term
purposes are included with financing activities
along with the related income.
Noncash gifts or in-kind contributions are
disclosed as noncash investing and financing
activities in a separate section.
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