Balance Sheet
A balance sheet is a very powerful part of financial reporting. A balance sheet shows the state of the
reporting entity at a point in time. It shows assets and liabilities and the net of assets and liabilities.
When a current balance sheet about now is compared with a balance sheet about some time past, there is
an immediate view of how things have changed. revenue of the period should be matched with the costs
associated with this revenue.
The balance sheet of a community, a neighborhood or a block shows in stark simplicity what is
happening. Much may stay the same from year to year ... indeed from century to century ... but some
items change rapidly, sometimes for the better, sometimes not. A community balance sheet report can be
prepared that shows what is changing in some detail while having the rest that has not changed in simple
summary.
Caveat
Accountancy has been very engaged with ensuring that assets and liabilities are accurately
reflected on the balance sheet. Unless these numbers are right, financial reporting becomes
an exercise in dangerous stupidity. It is apparent that sound accounting principles have been
ignored in the development of modern rules about how financial assets and liabilities are
valued for balance sheet reporting.
A common interval or period is one year ... but there are circumstances when more frequent analysis is
useful. Monthly reporting provides information about seasonality for example. In farming there are times
when stocks are very low, and then after harvest very high. A monthly balance sheet report shows when
stocks are lowest and highest.
Balance sheet – assets
A balance sheet should show the total of assets, and detail the make-up of the assets. There are both
tangible and intangible assets. Money, equipment, etc. are tangible assets. Goodwill is an intangible.
There are current assets and there are fixed assets. There may also be “off the balance sheet” assets.
In the corporate environment the generally accepted accounting principles (GAAP) are applied. In CA the
concepts are broadened to ensure that assets are reflected in the best possible way to show the state of the
community. In the CA environment, possibilities and potential are assets.
Balance sheet – liabilities
In corporate accounting with GAAP the liabilities are those that are reflected in law and about money.
The amounts owed, are the liabilities. There are also contingent liabilities that may be liabilities if certain
things do not work out.
In the CA environment constraints of various kinds are liabilities.
Balance sheet – net state
The net state is the difference between the assets and the liabilities. In corporate accounting this is
stockholders' equity.
In the CA environment, the net state is a convenient measure of the state of the community. However, it is
rare for this measure to be complete enough to be a useful comparative index across many different
communities.
Balance sheet analysis
Balance sheet analysis I
This method of analysis results in getting an understanding of the strength of the balance sheet and the
potential of the organization in corporate accounting analysis or for the community in CA.
A tabulation and analysis of the balance sheet of a community is an illuminating exercise.
Poverty
It is clear that the people in the community are poor ... but the balance sheet of the
community shows that the community is the home to vast natural resources. Why is there a
disconnect between the people poverty and the natural resource wealth? What is it that
makes this possible? What are the systemic issues that are keeping the poor people poor?
Analysis shows that there are many issues that go into explaining the persistent poverty.
There are rules of law that make it possible for property rights to trump human rights. There
are ownership rights that have priority and allow absentee owners to get rich while local
people stay poor.
Balance sheet analysis II
This method of analysis results in an understanding of how the organization's balance sheet or the
community balance sheet has changed over time.
Making key metrics simple
CA's primary metric of progress is very simple. Is the community better now than it was in the past? This
is not a complex idea, and there is no reason why there cannot be quick, easy and useful data about this.
In the image below, the value of the community is the same at the end of a period as it was at the
beginning ... ordinary daily activities produce what is consumed ... it is a stable situation.
In this next case the value of the community is more at the end of a period than at the beginning of the
period ... ordinary daily activities produce more than is consumed. It is progress ... it is a good situation.
In this last case the value of the community is the less at the end of a period than at the beginning of the
period ... ordinary daily activities produce less than is consumed. It is a problem ... a bad situation.
High performance programs integrate data collection, analysis, planning, action, more data collection,
more planning, more action in a perpetual process.
The ultimate measure of success is whether the change between the initial status and the post activity
status has a value that (substantially) exceeds the costs. The above schematic shows this as a box “Metric
of Improvement”. The activities produce their own results or outcomes, and in turn these have an impact
on the community. The metric of improvement is the impact on the community and the constituents of the
community measured as value adding.
Over multiple cycles the aim is for the scale of the interventions to diminish and for the impact on
community to get better and better, and the bad things to get smaller. The following depicts this
graphically over a four year cycle. The interventions start big and get smaller while the net socioeconomic state starts poor and gets better.
In this graphic the initial condition reflects a high level of socio-economic burden which over time
diminishes, yielding socio-economic improvement. Over time the amount of activity to improve the
situation and sustain the improvement diminishes.
This is the essence of success and sustainability. In the long run the value of a good status in the
community should be sufficient to pay for the cost of the essential ongoing activities that are needed to
maintain the improved status ... and repay any external funding required in the initial program stages.
Section II – Key Elements
This section introduces all the key elements of Community Accountancy (CA) as briefly as possible. For
convenience the items are listed below
Balance sheet
Balance sheet – assets
Balance sheet – liabilities
Balance sheet – net state
About the assets
About the liabilities
Balance sheet analysis I
Balance sheet analysis II
Activities
Cost
More about cost - elements of cost
Value
More about value
Productivity
Return
Price
Profit and value adding
Macro-economic indicators
Reporting
Independent, neutral and reliable
Value chain analysis
Time series analysis
Focus on community
Data collection ... dataflow
About Assets
The GAAP definitions and the CA principles
Tangible and intangible assets
Current assets and fixed assets
Working capital
Cash
Accounts receivable
Inventory
Prepayments and others
Fixed assets
Depreciation provision
Land
Buildings
Leasehold improvements
Equipment
Vehicles
Vessels
FFF
Intangible Assets
Goodwill
Natural resources
Human resources
Water
Infrastructure
Enabling environment
Security
Health
Education
Potential
Culture
About Liabilities
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