Nonprofit Financial Statements: Complete Guide with Examples

The Statement of Activities is a fundamental tool in this process, serving as a comprehensive report that provides a snapshot of the organization’s financial activities over a specific period. The purpose of the notes in nonprofit financial statements is to provide additional information and explanations that are not included in the main financial statements. These notes help to clarify and expand upon the information presented in the statements, ensuring that users have a comprehensive understanding accounting services for nonprofit organizations of the organization’s financial position and activities.

Revenue With Restrictions vs. Unrestricted Revenue

And internally, by analyzing revenue sources and spending patterns you can identify which programs are thriving, which areas need more funding, and where you have inefficiencies. Separating each stream by source also clarifies whether different donor conditions are applicable (e.g. unrestricted, temporarily restricted, or permanently restricted). By contrast, for-profit organizations can often categorize expenses in broad buckets like Sales, General and Administrative (SG&A), and Cost of Goods Sold (COGS) across several product lines. Although there are similarities in profit-and-loss elements, nonprofits must follow different rules and reporting structures. One of the key documents to help you make that call is the statement of activities.

• At Altruic Advisors, our nonprofit accountants have helped more than 500 organizations across the country with outsourced accounting, Form 990 preparation, and nonprofit audit services.
• Narratives should succinctly highlight achievements, financial strategies, and future plans in layman’s terms, while dashboards provide a visual summary of trends, ratios, and key indicators at a glance.
• By analyzing your nonprofit’s statement of activities, your organization can determine if the expenditures currently allocated for each of your programs are sustainable for the long run.
• This information can help you identify potential problems early on and solve them before they become larger financial issues.
• The funds raised through financing activities are used to support the organization’s operations and programs.
• The valuation method used depends on the accounting policies of the organization.
• The liabilities section includes items such as accounts payable, loans, and deferred revenue.

Financial Statements

Ultimately, the statement of activities affirms your organization’s long-term sustainability, because good planning and financial accountability are a strong basis for attracting new donors. That said, nonprofits can choose other reporting periods, like the calendar year, depending on their needs or any specific regulations they have to follow. The main thing is to stick with the same reporting period consistently, so the financial analysis stays accurate and easy to compare over time.

Online Resources

It enables regular financial check-ins, with your board reviewing the statement to ensure ongoing financial health. In this article, we’re going to break down the Statement of Activities and explain how to create one for your nonprofit. By the end, you’ll have a clear understanding of how it can help you manage your nonprofit’s finances better. Permanently restricted revenue consists of funds that are subject to permanent restrictions. These funds must be used for specific purposes in perpetuity and are often received through endowments or bequests.

• It classifies cash as stemming from either investing, financing, or operating activities, just as the for-profit version of this document would.
• For instance, a grant designated for a specific program must be reported as temporarily restricted until the program’s objectives are met.
• The nonprofit statement of activities consists of several key components that help in understanding the organization’s financial position.
• Since the statement of activities distinguishes unrestricted funds and restricted funds, you can get an idea of just how flexible your funding streams are.

Donations and grants play a crucial role in the financial sustainability of nonprofit organizations. They can come from individuals, corporations, foundations, or government agencies. These funds can be used to support the organization’s programs and services, cover operational costs, or fund special initiatives.

• Accounting software programs like QuickBooks or Sage Intacct can make gathering, organizing, and presenting information a much more straightforward process.
• The net assets section of the Statement of Financial Position is an important part of nonprofit financial statements.
• Improved financial management can help your nonprofit organization better allocate its resources and improve its overall performance.
• It is basically the nonprofit income statement because nonprofit entities do not have an income statement.
• The numbers for your statement of activities are pulled from your organization’s chart of accounts, and the net assets are calculated using those numbers after they’re put into the income statement itself.
• For example, a nonprofit is likely to have a separate general ledger account for each of its bank accounts.

Your organization works hard to raise funds and to use those funds to further your mission. Ensuring your reports are in check will https://holycitysinner.com/top-benefits-of-accounting-services-for-nonprofit-organizati/ help your nonprofit make the most of your finances moving forward. Let’s dive in to learn more about the specifics of your nonprofit statement of activities. It’s important that you make sure that all relevant staff are well educated in how to prepare a nonprofit statement of activities.