Esplorante la Lingvon de Financoj, Parto 4: De Buĝetsekcioj ĝis Financaj Etatoj

Exploring the Language of Finance, Part 4: From Budget Sections to Financial Statements

In Parts 1–3 we introduced basic terms through dialogues which showed how we use financial terms to run our nonprofit organization. Now we dive into the structure of a budget and two core reports: the Statement of Financial Position and the Statement of Financial Activities. The goal is to explain these concepts as clearly as a well‑crafted budget worksheet. Come on!

What makes up a “good” budget?

A budget is a story about the future: it shows not only how much we plan to spend but also why. Effective budgets therefore have three clear sections:

This separation makes the budget clearly show how each dollar supports the mission and what it costs to raise the next dollar.

Program vs. Administrative expenses

Nonprofits often struggle between too much administration and too little infrastructure. To run the organization well and efficiently fulfill its mission, the board of directors and director of the central office must ask themselves how to balance the costs that belong to:

• Programs: direct activities donors think of when they support us.
• Administration: behind‑the‑scenes work that keeps those activities running.

Rule of thumb: We have to ask ourselves for each invoice: Does this directly benefit the recipient of our service?

• If yes → program expense
• If no → administrative expense

This clear distinction builds donor trust: they understand that administrative costs are necessary but should not be excessive.

Statement of Financial Position (Balance Sheet)

The Statement of Financial Position presents a snapshot of the organization:

• Assets: everything we own or have a right to receive.
• Liabilities: everything we owe.
• Net Assets: the difference, subdivided into restricted and unrestricted.

A healthy net position gives board members and donors confidence: we are not spending more than we have. Additionally, one can tell if the organization is growing through time by means of the sum of cash available and sum of savings. Even the outstanding salaries can indicate if we’re growing by a larger staff…and that line is found among the liabilities.

Statement of Financial Activities (Income Statement)

The Statement of Financial Activities shows how money flowed in and out of the organization over a specific period (typically monthly, quarterly, or annually):

• Revenues by source (dues, donations, investment income, sales)
• Expenses classified by the three budget sections above
• Net Profit or Loss : the result of revenues minus expenses

With explanatory notes, this statement tells a story in numbers: What we planned, what we actually did, and what remains to be achieved.

New terms in this part

Summary

A budget is more than just a table; it is a story of accountability and vision. When budget sections, the Statement of Financial Position, and the Statement of Financial Activities present figures clearly and transparently, members grasp the full picture. It’s extremely important that the board of directors and director of the central office prepare a comprehensive budget each year to demonstrate that we’re fulfilling our mission and that the organization is able to achieve its goals. As always, if you have any questions or suggestions related to the finances of Esperanto-USA or this article series, please send me an email!

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