Understanding Nonprofit Financial Statements: The Basics Aplos University

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To learn even more about nonprofit financial reporting basics, as well as other fund accounting tips, check out our Accounting Fundamentals Revisited webinar series. To make this process easier, we recommend that your organization partner with a nonprofit accountant like the experts at Jitasa. Our team will meet you where you are in compiling your statement of activities, analyze your financial data, and make tailored recommendations to improve your revenue and expense allocation going forward. Be sure to pay attention to the net assets available to your organization under the “without restrictions” column of your statement of activities when analyzing the document for sustainability.

Best Practices for Nonprofit Financial Statements

They include statements such as the balance sheet, income statement, and cash flow statement to track assets, liabilities, revenues, and expenses. Document all sources of income and expenses, and present financial statements in an understandable format that anyone involved with the organization can access and interpret. Our definitive article is here to guide nonprofit owners and their finance teams, providing clear, detailed insights that help you manage and report your organization’s finances with confidence.

1 Cash donations

Income sources can consist of things like grants, donations, and investment income. Expenses can include things like salaries, office expenses, and program expenses. Looking at both of these levels will indicate whether the nonprofit is running at a surplus or a deficit. FastFund Accounting automatically generates your Statement of Activities with the proper segregation of revenue classes and expense functional categories. To read and understand a nonprofit financial report, you first need to familiarize yourself with the Statement of Activities.

6 Investments

However, if you’re facing financial challenges, such as overspending, you may need to take a look at your expenses and see where you can cut back or look for other opportunities to get funding. 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. Expense classification and allocation in nonprofit organizations is a meticulous process that ensures resources are used effectively and transparently. This process involves categorizing expenses into specific functional areas, which provides a clear picture of how funds are being utilized to support the organization’s mission. Proper classification and allocation are not just about compliance; they also offer valuable insights into the operational efficiency and strategic priorities of the nonprofit.

Statement of financial position

An SOA helps nonprofits analyze their financial health by showing how revenues are generated and how funds are allocated. The statement of activities is a key financial report used by nonprofit organizations to provide an overview of their financial performance over a specific period. It is like an income statement for for-profit businesses but is tailored to the unique needs and structure of nonprofits. The statement of financial position has applications for both short- and long-term financial planning.

Operating revenue

The statement of activities is a document that is regularly provided to board members, so there shouldn’t be any barrier to providing you with a copy. The statement of activities is generated directly from your organization’s accounting software as opposed to your donor management software. Nonprofit financials are reports that detail the financial health and performance of a nonprofit organization. Ratios like the program expenses to total expenses can help donors understand how much of their money directly supports your mission. This report provides an overview of your nonprofit’s financial health at a particular moment.

Reporting Contributions and Grants

It works alongside the balance sheet and income statement to give a complete picture of your finances.
The changes in net assets section of the Statement of Activities gives stakeholders a clear picture of the organization’s financial health.
If you’re unsure how to make these distinctions, check out this post on the difference between restricted and unrestricted funding.
Then, you can use your results to create a better-informed operating budget for the coming year.
For instance, if you notice you’re overspending on in-person fundraising events, you might think about investing in tools to make virtual events easier and more cost-effective.
The statement of activities is also important for nonprofits because it can help companies plan their resources and track their progress.
Your board members need to keep an eye on your nonprofit’s finances, but they don’t have to become finance pros to do this.

It’s important that you make sure that all relevant staff are well educated in how to prepare a nonprofit statement of activities. It’s essential they understand how the IRS prefers statements to be prepared—the IRS won’t accept forms without all the proper information. Well put together statements are also essential for reassuring donors and other interested parties as to the competency of your organization.

Nonprofits must carefully review grant agreements to classify and recognize revenue correctly.
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.
The statement of functional expenses is the one financial statement unique to nonprofits, since it breaks down how your organization’s spending furthers its mission.
So, while both types of organizations keep track of their finances, they report and use that money differently.
Donated Materials – value of materials that have been donated to your nonprofit.
This process involves categorizing expenses into specific functional areas, which provides a clear picture of how funds are being utilized to support the organization’s mission.
First, it helps nonprofit leaders make informed strategic decisions by showing where funds are coming from and how they are being spent.

For example, staff salaries for work across multiple programs should be allocated based on time spent on each activity, often tracked through timesheets. Shared costs like utilities may be allocated based on rational measures such as square footage usage. This ensures financial statements reflect the true cost of delivering services. Nonprofits the best email marketing platforms for nonprofits address diverse societal needs, but their financial structures require specialized reporting to ensure transparency and accountability. Accurate financial reporting is essential for maintaining donor trust, meeting regulatory requirements, and making informed management decisions.

The fiscal year usually makes sense because it lines up with other key financial documents, making it easier for managers and stakeholders to analyze and compare the numbers. Contact Jitasa’s team of nonprofit accountants to compile your statement of activities. This article provides practical tips for updating your mission, including reasons for change, a step-by-step guide, and how to stay focused throughout intangible asset the process. Instrumentl is the all-in-one grant management tool for nonprofits and consultants who want to find and win more grants without the stress of juggling grant work through disparate tools and sticky notes. Understanding and accurately maintaining this statement can guide strategic decision-making, enhance stakeholder trust, and help ensure the long-term sustainability of your organization. On the other hand, $311,227 corporate, foundation, and individual giving has restrictions.