Mastering Nonprofit Financial Statements: A Step-by-Step Guide + template

It gives a clear picture of the organization’s financial activities over a specific time. These four statements represent the primarily financial statements that nonprofit organizations prepare; however, some may include additional statements that provide even more insight into the organization’s finances. Familiarizing oneself with how these financial statements are developed will undoubtedly help users better understand a nonprofit organization’s financial position. An income statement is a critical tool for non-profit organizations as it helps them track their financial performance and understand their sources of revenue and expenses.

7 Restricted and unrestricted funds

The last of the four essential financial statements, the statement of functional expenses, is unique to nonprofits. In most accounting systems, expenditures are typically recorded as natural expenses, which are based on the nature of the payment. Most for-profit organizations stop there, but nonprofits have to go one step further and reorganize their costs based on their function in furthering the organization’s mission, which are known as functional expenses.

Compilation of Financial Statements

Then, they’ll attach their complete financial statements as appendices in case some readers want to dig deeper. Did you know that all nonprofit organizations are required by law to make their financial statements available to the public? This is so you know how well, or not so well a nonprofit is doing so you’re able to deduce their financial data before making a donation or other gift. The financial statements are basically the same as a for profit company with a few changes, and the terminology is a bit different. There are also four documents that all nonprofits must submit to the different government agencies as far as federal, state and city.

Nonprofit Statement of Activities: All You Should Know (+FAQs)

You can connect with a licensed CPA or EA who can file your business tax returns. At Taxfyle, we connect small businesses with licensed, experienced CPAs or EAs in the US. We handle the hard part of finding the right tax professional by matching you with a Pro who has the right experience to meet your unique needs and will manage your bookkeeping and file taxes for you. Most in-kind donations will come from companies providing products for an event, silent auctions, and raffles. Nonprofits use this report to file Form 990 with the Internal Revenue Service (IRS). 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.

• If your accounting software doesn’t include these reports, there are templates available to help you create them, such as the Statement of Activities template in the Chazin & Company’s nonprofit accounting guide.
• The statement of financial position is similar to the balance sheet of a for-profit entity, except that a net assets section takes the place of the equity section that a for-profit entity uses.
• This trust can lead to increased funding and other valuable resources for non-profit organizations.
• Let’s take a closer look at each of these documents and how your nonprofit can compile them.
• They include salaries and other costs to show exactly where the money goes, helping everyone understand the financial health of the nonprofit.

It also helps you identify how much of your organization’s money is going towards mission-based activities versus fundraising or administrative expenses. When you mail out a book, the postage on that shipment is considered a program expense because it is directly related to your mission. But when you mail a fundraising appeal to your donor list, postage suddenly becomes a fundraising expense instead.

• Including financial data in your annual report makes this document more comprehensive and transparent, allowing stakeholders to get a full picture of your nonprofit’s year and excite them about what’s to come.
• Our team of experts specializes in providing non-profit accounting solutions and can help non-profit accountants ensure that their financial statements are prepared in accordance with accounting standards and best practices.
• An income statement is a critical tool for non-profit organizations as it helps them track their financial performance and understand their sources of revenue and expenses.
• The Statement of Financial Position, also known as the Balance Sheet, is a financial statement that provides a snapshot of an organization’s financial position at a specific point in time.
• This comprehensive process involves collecting detailed records of donations, grants, investments, and all categories of expenses.
• Your nonprofit Statement of Activities ultimately gives stakeholders an idea of how well you’re using funds and other resources to successfully support your programming and fulfill your mission.

This is because it’s possible for a nonprofit to have plenty of money, yet still struggle month to month. The Statement of Functional Expenses reports in detail on your nonprofit’s expenditures. This document is a requirement for annual audits and categorizes your nonprofit’s costs based on their function according to your mission. Effective financial management equips you to make the most of your nonprofit’s limited resources. To produce meaningful reports to help you do this, you must track all financial activity and ideally compare it to your budget, or your financial representation of what you think you’ll pursue during the year.

Wrapping Up: Understanding Your Nonprofit’s Financial Health

Nonprofit accounting is the process of recording, managing, and preparing compliant financial statements for 501(c)(3) organizations. This includes tracking income and expenses, preparing tax returns, and creating financial reports. Nonprofits must also provide a functional expense analysis, and many organizations choose to meet this requirement using a nonprofit Statement of Functional Expenses. Mastering these nonprofit financial statements examples isn’t just about checking regulatory boxes – it’s about empowering your organization to make better decisions, build trust with donors, and ultimately create https://nyweekly.com/business/accounting-services-for-nonprofits-benefits-and-how-to-choose-the-right-provider/ more impact.

Additionally, the balance sheet provides insight into the organization’s liquidity, or its ability to meet its financial obligations in the short term. A higher proportion of current assets to current liabilities indicates a more liquid organization. The Statement of Activities is the Income Statement of a nonprofit organization. A nonprofit balance sheet (The Statement of Financial Position) should reflect assets, liabilities, and net assets. If you’re wondering how to track so many transactions with such precision, know that technology is on your side. Your nonprofit accounting software will help you automate the organization of revenue and expenses.

• We’ll help you determine if outsourcing your accounting and bookkeeping is the right decision for your organization.
• The statement of cash flows contains information about the flows of cash into and out of a nonprofit; in particular, it shows the extent of those nonprofit activities that generate and use cash.
• Since these providers may collect personal data like your IP address we allow you to block them here.
• Return to the Internal Reports Introduction page using the link below for greater detail on how to read various reports as well as recommended formatting.

Without a customized software solution, many nonprofits download their accounting data to Excel to compile the information in a usable format. However, this can be extremely time-consuming for your nonprofit’s team and take energy away from focusing on your mission. Between fundraising, marketing, and keeping your programs afloat, your nonprofit team likely collects a variety of financial data. 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 accounting services for nonprofit organizations organization’s spending to make sure it aligns with the mission and goals. This statement tracks the monthly cash flow in and out of your organization.