The primary goal of a nonprofit is to deliver on its mission to the constituents it serves. Nonprofit financial statements provide information that illustrates the organization's performance over a given period or specific moment. Creditworthy nonprofits with strong financial performance obtain loans and mortgages to help finance the purchase of assets that can help them better serve their constituents or reduce their dependence on outside funding. These mortgages appear on the nonprofit’s balance sheet.
On for-profit companies' balance sheet, the governing accounting equation is assets equal liabilities plus owner's equity. Since nonprofits do not have owners, owner's equity is zero and subsequently omitted from the balance sheet. The accounting equation for the nonprofit balance sheet becomes assets equals liabilities plus net assets. Net assets are defined as assets funded by the nonprofit's revenue-generating activities. Net assets include the net profit or loss pulled from the income statements of prior periods.
Not-for-profits typically use a statement of financial position instead of a balance sheet. Like a balance sheet, the statement of financial position shows the assets and liabilities, or what it owns or owes, at a particular moment, generally at the end of a quarter or year. Assets are items of value that the nonprofit can sell or use to provide its services. Nonprofit assets typically include cash and cash equivalents, grants receivable, buildings and equipment. Liabilities are monies owed to others or obligations that must be fulfilled. Liabilities include grants payable, lines of credit, term loans and mortgages.
A nonprofit's balance sheet or statement of financial position provides a snapshot of the nonprofit's financial position at a specific moment. On the balance sheet, a mortgage loan is recorded under liabilities in the long-term liabilities section. The balance sheet must reflect the then-current principal on the mortgage. Therefore, the principal amount remaining on the mortgage must be updated on the balance sheet to match the true remaining principal shown on the mortgage statement as the mortgage is paid down.
For example, ABC Healthcare Inc., a nonprofit, shows a mortgage liability of $100,000 for one of its mini-clinics at the end of the first quarter. Over the next quarter ABC Healthcare pays down the principal by $3,000. Therefore, the not-for-profit’s mortgage liability will show $97,000 at the end of the second quarter.