Nonprofit Financial Statements Explained: What Every Executive Should Know

You can also use the nonprofit statement of activities to evaluate the efficiency and effectiveness of the organization’s programs and services. By comparing program services expenses with program accomplishments and outcomes, nonprofits can assess whether they are achieving their intended impact in a cost-effective manner. Permanently restricted net assets are funds that have permanent donor-imposed restrictions. Nonprofits must carefully manage and steward these funds to ensure their long-term sustainability and impact.

3 Net assets

By breaking down expenses into categories, nonprofits can assess their financial health and make informed decisions about resource allocation. Donations and grants play a crucial role in the financial sustainability of nonprofit organizations. They can come from individuals, corporations, foundations, or government agencies.

Reporting Period

Your nonprofit works to accomplish its mission, and when it comes to communicating that to donors and external stakeholders, no document is as helpful as a statement of activities. Every year, Feeding America puts together a comprehensive annual report that’s as specific as it is well-designed. Apart from all the relevant financial statements, you’ll also find interesting statistics and notable achievements the organization made throughout the year. Most nonprofits use the accrual method, though, because it records revenue when it’s earned rather than when it’s received. One important difference between nonprofit and for-profit reporting in this statement is the use of gross receipts instead of gross sales.

• This amount reflects whether revenue exceeded expenses (surplus) or fell short (deficit) for the year.
• This statement is crucial because it provides insight into what your organization owns and owes.
• As a nonprofit professional she has specialized in fundraising, marketing, event planning, volunteer management, and board development.
• Proper classification and allocation are not just about compliance; they also offer valuable insights into the operational efficiency and strategic priorities of the nonprofit.
• The cherry on top is that an accurate income statement can help your organization complete your annual tax return.
• A Nonprofit Statement of Activities is a comprehensive report that gives a clear picture of an organization’s fiscal operations over a given period.
• Fees paid by your supporters in exchange for privileges, such as newsletters, information, contacts, or access to events.

Nonprofit statement of activities template

The reporting period defines the timeframe covered by the statement of activities, providing a snapshot of an organization’s financial performance within specific dates. This defined period allows for consistent tracking of revenue and expenses, facilitating comparisons across different periods and enabling analysis of financial trends. A clear understanding of the reporting period is essential for interpreting the information presented within the statement of activities. Analyzing the relationship between revenue and expenses within each category offers valuable insights. For instance, a high fundraising expense ratio might indicate inefficiencies in fundraising strategies.

Understand the change in net assets

A Statement of Activities is similar to a for-profit income statement and accounting services for nonprofit organizations is one of the four financial reports nonprofits must file. Get our FREE guide to nonprofit financial reports, featuring illustrations, annotations, and insights to help you better understand your organization’s finances. The statement of cash flows for an organization is typically prepared by a CPA at the close of a financial audit, but some entities prepare the report internally annually. This financial statement shows a summary of where the organization’s money was allocated and spent over a determined amount of time, typically one year.

What to Expect from a Fractional Financial Controller: Services That Drive Growth

Your nonprofit statement of activities is the equivalent of an income statement of a for-profit. You will also be able to analyze your net assets and categorize your nonprofit’s revenue and expenses. The first category to appear on this financial report is revenues, or how much money the organization is collecting. One of the most challenging aspects of tracking the financial health of a nonprofit organization is properly recording diverse sources of income.

What is a Nonprofit Statement of Activities?

For example, nonprofits record incoming funds only after meeting donor conditions, while for-profit companies can recognize revenue as soon as a sale is complete. It parallels the income statement used by for-profit businesses, but tracking how well you’ve fulfilled your mission, rather than focusing on profit. Your peers in the for-profit world have no choice but to focus on profit and loss reporting, but for you the prime concern is tracking how effectively resources are being applied to the mission. Nonprofits have a unique way of operating, and nowhere is this more apparent than when you do your financial reporting.

By breaking down revenue and expenses, this report shows how efficiently your organization is using resources to support your mission. Once the total expenses are subtracted from the total collected revenue, the result is a change in Net Assets. Since nonprofits operate with the intention of using all profit to fuel their mission, the change in net assets is typically much smaller when compared with a for-profit entity.