Nonprofit Financial Statements: The Complete Guide with Examples

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. 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. The two main types of nonprofit revenue are contributed revenue and earned revenue.

What Is A Profit And Loss Statement, And Do Nonprofits Need One?

• The Statement of Activities is the Income Statement of a nonprofit organization.
• FastFund is designed specifically for nonprofits, so you can be sure it meets your unique needs.
• A positive change in net assets indicates that revenue exceeded expenses, contributing to financial growth and potentially allowing the organization to expand its programs or build reserves.
• To start, begin with a solid understanding of nonprofit financial accounting principles.

The statement of cash flow shows how cash moves in and out of the nonprofit during the same period covered by the statement of activities. While the statement of activities includes all types of income and expenses, the statement of cash flow focuses on actual cash inflows and outflows, including payments on long-term investments like buildings. This statement is crucial for understanding the organization’s liquidity and its ability to cover short-term needs. The statement of activities is like a storybook that tells us about the organization’s income and expenses over time, ending with net assets. These net assets represent what the nonprofit truly owns after all its bills are paid. The balance sheet, on the other hand, is like a snapshot, showing at a single moment in time what the organization owns and what it owes, in order of liquidity (how quickly something can be converted into cash).

Want to see a live breakdown of real-life nonprofit financial statements

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 Statement of Financial Position gives you a snapshot of your financial health by revealing the underlying value of what your organization owns. You should look at your Statement of Activities every month and compare to previous periods. Identify trends and changes in sources of revenue, expenses, and changes to net assets. online bookkeeping The Statement of Activities further breaks down your revenue and expenses according to any restrictions limiting how or when you may use them. On the other hand, they share how these funds support students throughout their education.

The Difference Between an Income Statement and a Nonprofit Balance Sheet

Get our FREE guide to nonprofit financial reports, featuring illustrations, annotations, and insights to help you better understand your organization’s finances. Foundations require nonprofits to provide financial statements when they apply for grants. Major donors also may want to see financial statements before giving a significant gift. When a nonprofit shares more about its financial health, foundations and sponsors see that the nonprofit is financially viable and feel safer giving.

• They need to be clear about where every dollar goes—whether it’s directly supporting their mission or covering operations costs.
• Not-for-profit financial reporting shows potential donors that you’re a solid organization with a track record of success.
• It is interesting to note that occasionally funds are restricted internally (i.e., management or the Board of Directors decides to restrict how some of the unrestricted funds are to be spent).
• Avoiding common reporting pitfalls, such as misclassification of funds and lack of financial literacy, further supports transparency and resource management.
• The financing section is a report of any funds that have been borrowed and any loan amounts that have been paid back.

The difference between Revenues and Expenses is reported as Change in Net Assets. The inclusion of the text and photographs in Wellington Zoo’s annual report further encourages trust in the organization. Here’s an example from Code for Science & Society’s Statement of Financial Position from 2021. Our subsequent examples of other statements will be from this same report.

• The administrative cost ratio examines the proportion of total expenses used for administrative support, including salaries, office expenses, and general management.
• This guide untangles the two and explains how their accounting and tax requirements differ.
• Ensuring your reports are in check will help your nonprofit make the most of your finances moving forward.
• The income and expenditure are analysed into the categories of unrestricted, temporarily restricted and permanently restricted which have the same meaning as defined for the statement of financial position above.
• Unlike for-profit businesses that exist to generate profits for their owners, nonprofit organizations exist to pursue missions that address the needs of society.
• It details how much is spent on specific areas like programs, administration, and fundraising.
• These statements are essential for tracking the organization’s financial performance, ensuring compliance with regulatory standards, and building trust with stakeholders.

You need to do your research to make sure you’re using the resources available to you to stay on top of your responsibilities. Temporarily restricted net assets or funds are usually funds contributed by a donor who has placed conditions and restrictions on what the funds are to be used for. Designated net assets are unrestricted net assets which have been set aside by financial statements for nonprofits the organization for a specific (designated) purpose and are not generally available. Now you know the basics of the five essential financial reports that every nonprofit needs.

How can nonprofit financial statements be used for decision-making?

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). For nonprofit organizations, having clear, accurate financial statements is crucial for maintaining accountability and compliance. Financial statements not only communicate how funds are spent and managed, but also are necessary for seeking funding opportunities and donor support. Crafting comprehensive, professional financial statements tailored to meet nonprofit standards requires an understanding of required elements like the statement of financial position, activities, cash flows and more. For nonprofits, tracking and reporting operating activities are key to understanding how cash moves through the organization.

Temporarily restricted donations must be spent on a certain project over a particular period of time. Permanently restricted funds are given to the nonprofit to be used as investments. As the net income surplus or deficit is retained within the organization it also represents the change in net assets for the accounting period. The assets Bookkeeping for Chiropractors and liabilities can be subdivided into various categories depending on the activities of the non profit organization. Our free downloadable nonprofit chart of accounts template is available to assist in setting up the types of asset and liability accounts needed. To make this process easier, we recommend that your organization partner with a nonprofit accountant like the experts at Jitasa.