The Statement of Activities

The P&L is important because it provides a high-level overview of how much money the nonprofit is bringing in and where it is being spent. This information can be used to make decisions about where to allocate resources and how to improve the organization’s financial health. Expenses are the costs incurred by the nonprofit in carrying out its programs and activities. They can include salaries and benefits, rent, utilities, supplies, professional services, marketing, and other operational expenses. Expenses are typically classified into program expenses, administrative expenses, and fundraising expenses.

How often should a nonprofit prepare financial statements?

• The Statement of Cash Flows is one of the core external nonprofit financial statements required for an independent audit, so you should be familiar with it.
• Misclassifying these funds can lead to inaccurate financial statements and potential issues with compliance.
• Program expenses are directly related to the organization’s mission and the delivery of its programs and services.
• The income statement reports the revenues, gains, expenses, losses, net income and other totals for the period of time shown in the heading of the statement.
• Expenses are the costs incurred by the nonprofit in carrying out its programs and activities.
• Since most donors aren’t financial experts, they might not understand financial jargon or complex reports.

A typical nonprofit sees plenty of financial activity during a fiscal year—grants are awarded, fundraisers are hosted, donations are received, and expenses are paid. The nonprofit statement of activities serves as a financial summary, capturing all these monetary actions for a specific period, usually the fiscal year. The nonprofit Statement of Cash Flows reports on the cash flowing in and out of your organization over a certain period of time. It classifies cash as stemming from either investing, financing, or operating activities, just as the for-profit version of this document would. The above template helps you with the format of a nonprofit financial statement.

How to Prepare Your Nonprofit Financial Reports

However, if the balance sheet displays excessive liabilities, limited assets, or negative net assets, it may indicate financial challenges that need to be addressed. You should consider our materials to be an introduction to selected accounting and bookkeeping topics (with complexities likely omitted). We focus on financial statement reporting and do not discuss how that differs from income tax reporting. Therefore, you should always consult with accounting and tax professionals for assistance with your specific circumstances. The number of accounts in a nonprofit’s general ledger could range from 30 to 1,000 or more. The number of accounts depends on the number of programs that the nonprofit has, the types of revenues it earns, and the level of detail required for planning and control of the organization.

Net assets

• Liabilities in a nonprofit’s financial statements are like the backpack of obligations the organization carries.
• Notes to the financial statements, also known as footnotes, provide additional information and disclosures that accompany the main financial statements.
• Examples of non-profit cash flow statements can provide insight into how different organizations generate and spend their cash.
• The statement of activities is like a storybook that tells us about the organization’s income and expenses over time, ending with net assets.
• Since a nonprofit organization does not have owners, the third section of the statement of financial position is known as net assets (instead of owner’s equity or stockholders’ equity).
• It outlines the organization’s assets, liabilities, and net assets, which together display the overall financial health and stability of the nonprofit.
• If you use cash-based accounting, you’ll only record cash deposited into your bank during the reporting period.

Understanding the difference between restricted funds (designated for specific purposes by donors) and unrestricted funds (flexible money for operations) is essential for smart 5 Main Benefits of Accounting Services for Nonprofit Organizations nonprofit financial management. In this guide, we’ll break down the 10 most important nonprofit financial statements examples in plain English (no accounting degree required!) and show you how they can transform your nonprofit’s financial game. The World Wildlife Fund (WWF) features graphs alongside its statement of activities to present its annual report readers with a more visual perspective of its revenue and expenses. With just a glance, it’s easy to see that 85% of total expenses were program-related and that the majority (29%) of operating revenue came from individual contributors.

• Also called as statement of analysis cash flows, this means that the places in which the revenue of the company is going needs to be maintained properly.
• When you’re putting together a financial report for your nonprofit, you want it to be more than just numbers.
• This includes money from donors, loans from banks, and cash paid out for things like loan repayments or distributing funds to your projects.
• The clarity of routine reporting using Nonprofit Financial Statement Templates assists board governance and aids in securing donor funding through transparency.
• Whether you add graphs to visualize your most important financial details or simply include your audited reports on your website, consider how you can cater to your audience’s interests and preferences.
• The FASB Accounting Standards Codification Topic 958 requires important additional disclosures regarding liquidity, restrictions, etc. for creditors, donors, and others.
• This information is crucial in making informed decisions about resource allocation and setting your organization up to prosper for years to come.

These notes add context and transparency to the financial statements, aiding stakeholders in making informed decisions. Gains and losses are additional components that appear on the income statement. Gains represent increases in the organization’s net assets resulting from activities other than its primary operations, such as the sale of assets or investments. Losses, on the other hand, represent decreases in net assets due to activities not directly https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ related to the nonprofit’s core operations. Insurance Expense, Wages Expense, Advertising Expense, Interest Expense are expenses matched with the period of time in the heading of the income statement.