You should also prepare a Statement of Financial Position (Balance Sheet) and a Statement of Cash Flow. These statements collectively provide a comprehensive overview of your nonprofit’s financial position, performance, and cash flow. Nonprofits must also provide a functional expense analysis, and many organizations choose to meet this requirement using a nonprofit Statement of Functional Expenses. The nonprofit statement of activities provides valuable insights into the organization’s financial health and performance. Interpreting this statement involves analyzing key ratios, trends, and indicators that paint a comprehensive picture of the https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ organization’s financial position. The nonprofit statement of activities is one of the core accounting documents that your organization creates.

Understand the purpose of the statement of activities

Instead, it acts like a snapshot, providing a clear and concise picture of a nonprofit’s financial health during a specific time frame—typically the organization’s fiscal year. A Statement of Activities is one of the four required financial statements a nonprofit must file. Nonprofit accounting can feel complicated for nonprofits without a solid financial background, but there are ways to make filing reports easier. A Statement of Activities is similar to a for-profit income statement and is one of the four financial reports nonprofits must file. Also presented are sample note disclosures related to liquidity management and expenses (Exhibit 3).

Net Assets: Unrestricted, Temporarily, and Permanently Restricted

• It allows you to remain transparent about your resource allocations to stakeholders and report expenses on your Form 990.
• For purposes of illustration, assume that ABC Foundation has $291,800 (discounted to present value) of pledges for capital additions, of which $45,000 is classified as current.
• An accurate and timely Form 990 allows nonprofits to protect their nonprofit and tax-exempt statuses, as well as serve as evidence of transparency and financial stability.
• For instance, contributions might include individual donations, corporate sponsorships, and fundraising event proceeds, each of which can be tracked separately to assess their impact.
• Previous FASB standards required nonprofits to separately report investment expenses; they can now report investment returns net of investment-related expenses.
• This complexity necessitates a thorough understanding of the principles governing revenue recognition to maintain financial integrity and transparency.

These categories typically include program services, management and general, and fundraising. Accurately classifying expenses provides stakeholders with insights into how resources are utilized to achieve the organization’s mission and maintain operational efficiency. A Statement of Activities is a financial statement commonly used by nonprofit organizations. A Statement of Activities details financial performance on nonprofit organizations throughout a fiscal year.

Statement of Activities: Reading a Nonprofit Income Statement

By sharing what funds you collect and how they’re spent, donors can see how their gifts support your nonprofit’s programs and beneficiaries. Yes, many accounting software platforms have built-in templates and features to generate financial statements automatically. These tools can streamline the process and ensure accuracy in your financial reporting.

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That’s because it cannot be used when a nonprofit has received more than $25 million in all of its gross receipts over the three previous years. If you’re in charge of the finances of your non-profit organization, you need to be aware of the fact that the accounting tasks required of you will be different from those required of a for-profit company. The most practical way to keep up with accounting needs is to have a Non Profit Financial Statement Template that you use for all your accounting needs. This ratio measures your short-term financial health and ability to meet obligations.

Misunderstanding Donor Restrictions

For example, if total revenues for the fiscal year are $2,200,000 and total expenses are $1,850,000, you subtract the expenses from the revenue to determine the net assets. To calculate Net Assets, you start by summing all sources of revenue, including donations, grants, investment income, service revenue, sales, special event income, and any other revenue streams. You can publish the statement of activities on your website, in your annual report, or share it directly with your donors and any grant-making organizations you depend on.

• Nonprofits need the Statement of Activities in order to file Form 990 with the IRS.
• Financial activities result in either a surplus (increase) or shortfall/deficit (decrease) in the organization’s net assets shown on the Statement of Financial Position (SOFP).
• The SOA details the revenue earned and expenses incurred during that period, as well as the resulting net position.
• These distinctions highlight the different financial dynamics and objectives between nonprofit organizations and for-profit businesses.
• If you already organize your financial transactions into those 2 parts, you can map it to one year report using this template.
• This approach ensures that the organization does not prematurely recognize revenue that it may ultimately have to return if the conditions are not met.

These standards comprise Statement of Financial Accounting Standards No. 116 (SFAS 116) and Statement of Financial Accounting Standards No. 117 (SFAS 117). When nonprofits raise money from corporate partners, major supporters, and individual donors, these are all considered monetary contributions. If your organization qualifies as a nonprofit, The Key Benefits of Accounting Services for Nonprofit Organizations it does not have to pay any federal taxes on the money it brings in. However, that does not mean that a nonprofit has no responsibilities whatsoever related to taxes.