Net assets is defined as total assets minus total liabilities. In a sole proprietorship the amount of net assets is reported as owner’s equity. In a corporation the amount of net assets is reported as stockholders’ equity.

In a not-for-profit (NFP) organization the amount of total assets minus total liabilities is actually reported as net assets in its statement of financial position. The net asset section for the NFP organization is divided into three classifications:

1. unrestricted net assets

2. temporarily restricted net assets

3. permanently restricted net assets.

The changes in these net asset classifications are reported in the organization’s statement of activities.

About the Author: Harold Averkamp (CPA) has worked as an accountant, consultant, and university accounting instructor for more than 25 years.

He is the creator of the AccountingCoach Pro which has been praised for its ability to simplify accounting in a way that anybody can understand.

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