Nonprofit Statement of Activities: Everything You Need to Know

For board members accustomed to corporate financial reporting, understanding these differences is essential to provide effective governance and oversight. This article breaks down the key components of nonprofit financial statements and highlights their unique aspects. The Statement of Activities is one of the four statements that nonprofit organizations must include in their financial reports. Think of it as a detailed story of how the organization earns and spends money to support its mission. It shows all the money coming in (like donations and grants) and going out (like costs for programs and grants to other organizations). This statement helps everyone understand the organization’s financial activities, including what your organization owns (assets) and what it owes (liabilities).

Operating activities

• Temporarily restricted donations must be spent on a certain project over a particular period of time.
• Nonprofits may engage in investing activities to generate income or to support their mission.
• This allows readers to easily understand the composition of the organization’s net assets and the overall financial position.
• You can also manage donors, send them automated donation receipts, add offline donations, let donors login and manage their accounts themselves, and more on Donorbox.
• A nonprofit consultant can work with your team to interpret your financial data and harness it for future growth.
• The non-profit income statement is a map that shows where the water (money) flows in the garden.
• This statement provides a snapshot of the organization’s assets, liabilities, and net assets at a specific point in time.

A restricted fund budget should align with donor stipulations, ensuring that expenses directly support the intended programs or projects. Conversely, an unrestricted fund budget should provide a framework for operational costs and other activities central to the organization’s mission. Program services expenses are directly related to the organization’s mission and programs. These expenses include salaries and benefits for program staff, program materials and supplies, and any other costs incurred in delivering the organization’s services to its beneficiaries.

Challenges Faced in Nonprofit Financial Reporting

It shows the organization’s financial position and helps assess its liquidity and solvency. To effectively implement accounting policies, nonprofit organizations should establish internal controls and procedures. This includes segregating duties, conducting regular audits, and maintaining proper documentation. By having strong internal controls, nonprofit organizations can minimize the risk of fraud and errors in their financial statements.

Understanding Nonprofit Fund Categories

The nonprofit statement of activities provides a clear breakdown of the revenue generated from donations and grants, allowing organizations to assess the effectiveness of their fundraising efforts. It also helps donors and funders understand how their contributions are being utilized and the impact they are making. They include statements such as the balance sheet, income statement, and cash flow statement to track assets, liabilities, revenues, and expenses. Our complete guide to nonprofit financial statements has everything you need to ace these reports.

These notes provide additional information and explanations about specific items in the financial statements, significant accounting policies, and other disclosures. This statement should outline all revenue streams and expenses, segmented by unrestricted, temporarily restricted, and permanently restricted categories. It shows the changes in net assets over the fiscal period, highlighting the organization’s financial health and growth. Gathering all financial data for the fiscal year is a critical task that underpins the integrity of nonprofit financial statements. In the context of specialized accounting for charitable organizations, the Statement of Functional Expenses aids in demonstrating the efficiency and effectiveness of the organization’s operations. This detailed breakdown is often scrutinized by donors, grant-makers, and regulatory bodies to ensure that funds are being used appropriately.

• Your nonprofit’s financial statements are only as accurate as the financial data you input.
• Nonprofits must compile an income statement every year to be in accordance with the Generally Accepted Accounting Principles (GAAP).
• These donations may be one-time gifts or recurring contributions, and they can vary in amount from a few dollars to significant sums.
• 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.
• Did you know that all nonprofit organizations are required by law to make their financial statements available to the public?
• Financial statements also give donors a better understanding of how the organization is doing.
• This report provides an overview of your nonprofit’s financial health at a particular moment.

The owners and authors of Nonprofit Information accept no liability for the views expressed in an article on the site. The IRS 990 doesn’t really qualify, since it’s done once per year and first-and-foremost as a tax compliance document. Or create reports at the department level to make sure each team member gets all the information they need (and only the information they need). The budget vs. actual report helps you to easily compare what happened in your business to what you expected to happen. Or help you understand why your cash increased even as you lost money that quarter (maybe you dipped into your line of credit to make payroll).

• This includes recognizing and reporting donations, grants, and other forms of income in ways that align with regulatory requirements and best practices.
• Establishing clear policies and procedures for the investment and utilization of permanently restricted net assets is essential to honor donor wishes and maintain the organization’s credibility.
• Unrestricted revenue is the most flexible type of revenue and can be used for any purpose within the organization’s mission.
• You should consult your own legal, tax or accounting advisors before engaging in any transaction.
• Even though you don’t have to pay federal taxes, almost all nonprofit organizations (the few exceptions are listed here) must file an IRS Form 990 each year.
• Organizations can also use this report to educate board members and staff leadership on financial needs and opportunities.

But many times they don’t fully understand what the report is, and what they’re looking for is something that’s not actually in the report. Essentially, it shows you how much money you’ve “made” or “lost” during that period, which is why it’s often called a Profit-And-Loss Statement (or an Income Statement) in a for-profit company. When a for-profit business has assets, they can usually use them however they want– to buy equipment, give raises, invest in real estate– but nonprofit assets are often more complex. The Statement of Financial Position gives you a snapshot of your financial health by revealing https://nyweekly.com/business/accounting-services-for-nonprofits-benefits-and-how-to-choose-the-right-provider/ the underlying value of what your organization owns. 3 Please note that funds relating to Currencycloud’s services are not FDIC insured or protected by the Visa Zero liability protection policy. In regards to Currencycloud’s services when funds are posted to your account, e-money is issued in exchange for these funds, by an Electronic Money Institution who we work with, called Currencycloud.

By compiling a statement of activities, your nonprofit can evaluate the sustainability of its programs and determine whether you need to raise more funds to cover your projected expenses in the coming year. For instance, you might decide to focus on marketing matching gifts to generate the revenue you need Everything You Should Know about Accounting Services for Nonprofit Organizations to expand one of your core programs. To continue fulfilling your essential role in the community, you must meet IRS reporting requirements, build donor trust, and make informed decisions that contribute to your overall financial sustainability.

The report can tell leadership when it’s time to increase fundraising activities or cut back on payroll costs. In order to stay compliant with governing agencies, nonprofit leaders should frequently review the statement of activities to ensure that resources are being properly allocated. Audits serve as a tool for accountability in nonprofit organizations, providing assurance that funds are managed according to legal and organizational stipulations. Independent audits may be required for organizations receiving certain levels of federal funding, typically when expenses exceed $750,000 annually.