Statement of Activities: Reading a Nonprofit Income Statement

For those in a senior leadership role at a nonprofit, it’s important to acknowledge that these accounting statements tell a story. Those who read the statements use them to assess the performance of the nonprofit and ensure donor funds are wisely spent. Each statement, and any accompanying disclosures, convey all kinds of information, from the liquidity of the organization to the effectiveness of the fundraising team. These are expenses such as research and education that directly support the mission of the nonprofit. The remaining 30% or so of expenses are supporting expenses such as management and general or fundraising expenses.

These include budget vs actual reports, cash flow forecasts and specific program or project financial reports. These reports help board members fulfill their fiduciary responsibilities by enabling them to oversee the financial health and strategic direction of the nonprofit. A statement of activities quantifies the revenues and expenses of a nonprofit entity for a reporting period. This is the nonprofit version of the income statement that is used to report the financial results of a for-profit business.

  1. Unrestricted revenues can be used for any legal expenses that a nonprofit might have.
  2. Between your statement of activities and statement of functional expenses, you’ll be all set to file your Form 990 accurately each and every year.
  3. Unfortunately, faced with resource constraints, many charities default to manual, excel-based accounting and planning processes that aren’t equipped for detailed reporting, which creates accountability gaps.
  4. These standards provide guidelines for proper financial reporting, including the preparation of the Statement of Activities.

Your nonprofit’s Statement of Activities must include your organization’s revenue, expenses, and net assets. Since functional expenses are a big theme for many investors, particularly the percentage of money you’re spending on programs, most nonprofit Statement of Activities are organized according to functional expenses. Simply, it reports your organization’s revenue and expenses during a specific period and the difference between them. In most states, charities are legally required to maintain accurate financial records to attain the recognition of a nonprofit.

Statement of Activities: How to Read This Key Nonprofit Financial Report

It is crucial to categorize revenue types to make it easier to gain insights into the sustainability of funding sources both for internal purposes and external stakeholders. The Statement of Activities, an essential tool for any nonprofit organization, is akin to an Income Statement or Profit and Loss Statement in the for-profit business realm. Restricted Revenue includes any donations which have donor-placed restrictions statement of activities nonprofit on how or when the money can be spent, while Unrestricted Revenue includes any money which can be used for any purpose. You may choose to break down your revenue into additional categories, such as Sources of Unrestricted Donations and Federated Campaigns. The Foundation determined that it could fund its current operating budget for the upcoming year by increasing donations from individuals and businesses.

Creating a nonprofit budget template can be a valuable tool to organize your financial data, plan for future expenses, and ensure fiscal responsibility within your organization. As a nonprofit CEO or Executive Director, understanding the financial health of your organization is crucial for making informed decisions and demonstrating transparency to your stakeholders. One essential financial statement that provides valuable insights into your nonprofit’s activities and resources is the Statement of Activities. In this blog post, we will delve into what a Statement of Activities entails, what should be included in it, provide a practical example, discuss how it can be utilized, and answer some frequently asked questions.

A Guide to Financial Reporting for Nonprofits

The following 3 nonprofits have included financial statements in different ways. Your net assets can be from the current and previous operating years and include anything that holds value. Financial statements also help nonprofits determine the future of their organization. It also allows leadership to find potential financial opportunities and ways to address financial concerns. Nonprofits must comply with the IRS and file four financial statements to ensure they follow strict nonprofit regulations. Many of these statements are similar to what for-profit businesses file, but some significant differences exist.

Statement of Cash Flows

Designed to let you track unlimited funds and manage your books with ease, MIP Fund Accounting® software offers a simple way to manage intricate financial processes in a single, user-friendly system. If you’re a voluntary health or welfare organization you also must present your expenses in a matrix, which includes both the natural and functional expenses by program, according to FASB Statement 117. These statements also show your nonprofit is staying compliant with financial regulations. The Financial Accounting Standards Board also requires nonprofits to report changes in net assets based on the restriction categories of permanently, temporarily, or unrestricted. Earned revenue includes categories such as contract revenue, program service fees, membership dues, and special event income. Other revenue includes investment income such as unrealized gains and losses.

By sharing your financial statements, you can let them see for themselves just how effectively you’re working to accomplish your mission. The best way to create accurate, useful financial statements for your organization is to work with a nonprofit accountant. Since many nonprofits don’t have a full-time accountant on staff, consider outsourcing your accounting needs to a nonprofit-specific firm like Jitasa. The statement of functional expenses serves as an indicator of how effectively the nonprofit is allocating funds toward advancing its mission.

Though it is possible to compress these rows down to just a few line items, it is customary to be more expansive in detailing revenues and expenses. Each of the four core reports that nonprofits compile annually summarizes your financial data in a different way, providing unique insights into your organization’s current situation. Nonprofit financial statements paint a comprehensive picture of the activities and operations of the nonprofit.

Jo-Anne is a certified Sage Intacct Accounting and Implementation Specialist, a certified QuickBooks ProAdvisor, an AICPA Not-for-Profit Certificate II holder, and Standard for Excellence Licensed Consultant. The letter from the independent auditor highlights their opinion that Save the Children is following all required financial laws. The auditors https://accounting-services.net/ also make the statements interesting and target them to Save the Children’s English donor base. Online websites like Charity Navigator and GuideStar also use these reports to rate your organization. Investing expenses are the purchases of long-term investments and any payments on long-term investments like buildings, land, equipment, etc.

It breaks down each type of spending into specific details, such as credit card payments and employee salaries. This information can help you identify potential problems early on and solve them before they become larger financial issues. 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. Finally, one of the categories often listed as revenue on your statement of activities is your net assets released from restriction.

How to Create a Statement Of Activities

Charities receive both unrestricted and restricted funds, that is, funds that don’t and do have pre-determined rules on how they can be used. The latter are highly regulated and continually monitored — whether they come through donors, stakeholders, or bequests. If your nonprofit has a solid accounting system in place, you likely collect a lot of financial data.

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. You can use the insights from this nonprofit financial statement to guide your annual budget planning. Plus, this publicly available information can provide current and prospective donors with the context they need to decide whether they’d like to support your nonprofit based on how it employs its funds. The revenues and expenses in this report are broken down by unrestricted funds and funds with restrictions placed on them by donors, using separate columns across the statement.

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