Deciphering the income statement and notes of an association

Like companies, some associations are required to submit annual financial statements. Under French accounting law, the three main documents required are the balance sheet, income statement and notes to the financial statements.

At the end of the financial year, to show the profit or loss for the period, i.e. the difference between income and expenses, we publish the income statement. The balance of the account shows the result, which is either a profit or a loss. The appendix explains the methods applied to the balance sheet and income statement.

Let's take a closer look at an association's income statement and notes.

The benefits of bookkeeping

You may have heard that associations are not legally obliged to keep accounts. However, it's crucial to understand that this doesn't mean they should wait until they are obliged to do so. In fact, to ensure optimal management of their operations, association managers have everything to gain by maintaining at least a cash accounting system. What does this involve? It's simply a matter of keeping a chronological record of cash inflows and outflows.

Fortunately, there are online tools specially designed to simplify this task, enabling you to track cash inflows and outflows live, or anticipate VAT payments on estimates and invoices. They automate most tedious operations, minimizing the risk of human error. Adopting these solutions saves considerable time, especially for the person in charge, usually the treasurer.

You may be wondering why this is so important. Well-kept accounts provide a clear picture of the association's financial situation at a given point in time, often at the end of the year. This transparency is essential not only for association members, but also for financial partners. Sound accounting inspires confidence and can play a decisive role in obtaining loans or grants.

With accurate accounting at your fingertips, it's much easier to plan budgets, identify needs and even anticipate potential difficulties. This gives you an accurate, up-to-date view of the real state of your organization.

It's also crucial to bear in mind that associations may be subject to audits by tax authorities, especially if they receive government aid. With this in mind, we strongly recommend that you keep your association's accounts well organized and up to date.

Even if the law of July 1, 1901 doesn't require it, it's undeniable that keeping proper accounts is a wise decision for any type of association. It enables better internal management, reinforces transparency and trust, and can facilitate access to essential financial resources. So don't wait until you have to, start taking care of your association's financial health now.

Accounting requirements for associations

It is important to note that as of January 1, 2020, a completely new chart of accounts is in force.

You may be wondering why this obligation has been introduced. It has three fundamental objectives:

  • Firstly, it aims to provide a transparent picture of the financial situation to both association members and partners.
  • Secondly, this approachprovides better visibility of how resources are managed, offering a more precise overview of activities.
  • Finally, it's essential to understand that clear, precise accounting greatly facilitates audits by the authorities, guaranteeing the accuracy of the accounts.

In practical terms, this means preparing a balance sheet, income statement and notes to the accounts. In some cases, larger associations may also be required to provide additional documents. For the moment, let's concentrate on the income statement and notes, which are particularly important to examine.

What exactly does an association's income statement represent?

It's an essential tool that testifies to the financial soundness of your association. It has a particularly useful function: it enables you to guide and supervise your activity by breaking it down into different categories.

  • On the one hand, there's revenue, which includes all cash inflows, such as memberships and donations.
  • On the other hand, we have expenses, which include everything from purchases and rent to electricity...
  • The crucial point is the result, which emerges from the difference between income and expenses. It can be positive, meaning that your revenues exceed your expenses, which is desirable. Conversely, it can be negative if your expenses exceed your income.

For a better understanding of these concepts, the income statement is generally presented in the form of a list.

This structure highlights three partial totals:

  • operating income (revenue less operating expenses),
  • financial income (financial income less financial expense),
  • extraordinary income (income less extraordinary expenses).

By adding up these three totals at the end of the document, you obtain the profit or loss.

Operating income

When you're running an association, operating income includes all the income and expenditure generated by your regular activities. Think, for example, of the donations you collect or the cakes you sell (these are your revenues). On the other hand, you have expenses, such as the purchase of a printer, insurance payments or office supplies.

In short, operating income is everything that goes to make up the day-to-day running of your association. It's a concept that's both simple and crucial to understanding the financial workings of your organization.

Net financial income

The financial result includes all financial transactions carried out within your association. Let's take a concrete example: you take out a bank loan to purchase a company car (product). However, let's not forget the bank charges associated with this loan, which constitute expenses.

Extraordinary income

Extraordinary profit or loss refers to gains and expenses that occur on an exceptional basis. Think of it as a category reserved for unusual events that occurred during the accounting period.

You may receive a one-off government grant to support your association in the event of temporary difficulties (exceptional income). Conversely, a penalty for late payment of tax may constitute an exceptional expense.

The exceptional result covers these unusual situations, which do not occur on a regular basis. This allows you to take into account special circumstances that may have an impact on your association's finances.

The final result

The final result is the synthesis of the income statement. It is on the basis of this final result that you can decide whether to maintain or change your strategy for the coming years. Take the time to analyze and understand each result, as this will help you adjust your management accordingly. Numbers speak for themselves, and by understanding them, you can make informed decisions to guide the future of your association.

The appendix

It is essential to understand the role of the notes to the balance sheet and income statement. The notes are an inseparable part of these two documents. Its purpose is to provide additional information and comments to clarify what is presented in the balance sheet and income statement. It is important that this additional information does not contradict the data in the balance sheet and income statement. The notes follow the same principles and conditions of preparation as these two documents.

The details shared in the notes must be verifiable and comparable from one year to the next, and from one structure to the next. This is achieved by applying similar calculation and presentation methods. However, no presentation is required by law.

It's worth noting that some information must be included on a mandatory basis, while others are included only if they have a significant impact on the organization's situation. The notes to the financial statements are an essential complement, providing a more in-depth and contextual view of the financial information presented in the balance sheet and income statement.