A Practical Guide to Nonprofit Financial Statements

August 16, 2022

The board of directors of a nonprofit has a fiduciary duty to ensure the organization is financially sound and that its resources are used appropriately. They review, approve, and provide oversight on financial statements and budgets. Regularly updating these statements is necessary to comply with audit requirements and provides essential information for decision-making within the organization. By adhering to these practices, nonprofits demonstrate their dedication to compliance and stewardship of the funds entrusted to them by donors and grantors. Non-profit organizations must employ meticulous bookkeeping practices to distinguish between funds with donor restrictions and those without.

• Nonprofit accounting uses specific rules and procedures to track how funds are being used and thus keep their leadership accountable to its donors and contributors.
• However, that is not the only reason why you would want to compile these reports.
• As the endowment principal is not spent, it is normally invested in long term investments to generate the income.
• Foundations also typically require nonprofits to provide financial statements when they apply for grants.
• These donations may be one-time gifts or recurring contributions, and they can vary in amount from a few dollars to significant sums.
• Reading a Statement of Activities can be helpful for understanding a nonprofit’s overall financial picture.
• If non-profit organizations will not make an income statement, they will not examine whether the money that they are getting is truly going to the expenses of the program.

What Is A Balance Sheet?

The Statement of Activities gives you a sense for how well the nonprofit is operating. Meanwhile, it is important for nonprofits to be aware of their legal obligations. GrowthForce accounting services provided through an alliance with SK CPA, PLLC. Get in touch to learn more about MemberClicks – software designed for the unique needs of associations, chambers and nonprofits. While each metric serves a unique purpose, collectively, they help leaders gauge whether the organization is effectively using resources to achieve its mission. Most in-kind donations will come from companies providing products for an event, silent auctions, and raffles.

What can you benefit from a non-profit financial statement?

This statement is a great way to stay informed about how cash resources are being used during the fiscal year. When you’re reviewing your cash flow statement, look at the organization’s spending to make sure it aligns with the mission and goals. The nonprofit statement of activities separates revenue with and without restrictions so that organizations can see the flexibility in their funding in addition to the sheer amount of it. The nonprofit statement of activities and the income statement are two different terms that refer to the same report.

• As you calculate the total income, you should also calculate your total expenses.
• It’s essential for nonprofits to maintain detailed records of restricted funds to ensure they are used in accordance with the donor’s stipulations.
• The closing net assets shown above at 400,000 is highlighted in blue as it reconciles to the closing net assets on the second of the nonprofit financial statements which is the statement of activities discussed below.
• It is important for nonprofit organizations to carefully consider their accounting policies and choose the method that best suits their needs and goals.
• Functional areas typically include management and administration, fund raising, and programs.
• To avoid corruption in any way, you should secure a financial statement that can show where all the money is going.

FREE Non Profit Financial Statement s to Download

These expenses can be anything- salaries, social awareness, social service, charity, etc. The money that was spent on capital investments, like real estate, equipment, and other fixed assets and also any money received from the sale or benefit of those investments. This content may include information about products, features, and/or services that may only be available through SoFi’s affiliates and is intended to be educational in nature. SoFi has no control over the content, products or services offered nor the security or privacy of information transmitted to others via their website. SoFi does not guarantee or endorse the products, information or recommendations provided in any third party website.

Many nonprofits will also share these financial statements with their donors, and use them in their annual reports. Financial statements give donors a better understanding of how your organization is doing. Foundations also typically require nonprofits to provide financial statements when they apply for grants. While some nonprofit financial statements are similar to what for-profit businesses file, there are also some key differences. Here’s a look at five essential financial documents for nonprofits, what each statement is designed to show, plus an example of a nonprofit financial statement. You now know what nonprofit financial statements are, https://greatercollinwood.org/main-benefits-of-accounting-services-for-nonprofit-organizations/ and why they’re so brilliant (and necessary) to have.

Best Practices for Mastering Nonprofit Financial Statements

• The notes may include details about accounting policies, significant events or transactions, contingencies, and other relevant information.
• For that reason, we default to talking about accrual basis accounting in this article.
• A systematic approach for organizing funds for projects and operational expenses.
• As we mentioned earlier, many nonprofits use these financial statements in their annual reports to show transparency and build trust in their organization.
• This annual filing details your mission, programs, and finances for the world to see.

No matter what option you choose, you need to gather all your financial information before Top Benefits of Accounting Services for Nonprofit Organizations You Should Know you can create a nonprofit statement of activities. This includes things such as your non-profit’s bank statements, tax returns, and investment statements. Once you have all of this information, you can start creating your statement of activities. Also presented are sample note disclosures related to liquidity management and expenses (Exhibit 3).