But many times they don’t fully understand what the report is, and what they’re looking for is something that’s not actually in the report. The Statement of Activities summarizes the money you’ve received (revenues) and the money you’ve spent (expenses) during a given period. But in your audited nonprofit financials, it will be called a Statement of Financial Position. You’ll discover what information each report includes, how to use it, and additional resources for exploring in more depth. A listing of the titles of the general ledger accounts is known as the chart of accounts. Before we illustrate a sample statement of activities, let’s take a closer look at its components.
The Leukemia & Lymphoma Society (LLS) shares its audited financial statements for the past five years on its website. Furthermore, WWF adds graphs that illustrate the nonprofit’s operating revenue and program spending growth over the past decade. The Statement of Functional Expenses helps your organization comply with state and federal regulations (including filing your Form 990). It also helps you identify how much of your organization’s money is going towards mission-based activities versus fundraising or administrative expenses. Understanding this metric can help you gauge how well your organization can meet its short-term obligations, thus ensuring stability and sustainability in your nonprofit’s operations. You might wonder why it’s referred to as a Statement of Financial Position instead of a Balance Sheet when dealing with nonprofit organizations.
Wrapping Up: Understanding Your Nonprofit’s Financial Health
Increase your desired income on your desired schedule by using Taxfyle’s platform to pick up tax filing, consultation, and bookkeeping jobs. Your team needs to spend countless hours entering receipts, invoicing clients, running payroll, and reconciling your books BEFORE you can get the reports you need to run your business the right way. But there is one other major difference, and it’s the issue of restricted funds. Examples include buildings, furniture, vehicles, inventory, large equipment, and accumulated depreciation. On the Statement of Financial Position, your assets break down into current assets, fixed assets, and other assets.
- This statement shows your organization’s assets, liabilities, and net assets.
- This is because those assets are tied up in physical belongings (property, software, etc.) and cannot be liquidated to cover additional liabilities.
- Furthermore, charity watchdogs such as GuideStar and Charity Navigator often consider nonprofit financial reports when rating profiles on their website.
- The one that gives the most insight about the overall financial health of your nonprofit is known as the statement of financial position, also known as the nonprofit balance sheet.
The Statement of Financial Position is the Balance Sheet of a nonprofit organization. Kristin focuses on not-for-profit organizations and trade associations, as well as real estate and attest engagements under the Renewable Fuel Standard. The budget vs. actual report helps you to easily compare what happened in your business to what you expected to happen. But it won’t show you what happened to the cash you spent, which is generally what board members want to know. Or help you understand why your cash increased even as you lost money that quarter (maybe you dipped into your line of credit to make payroll). Essentially, it shows you how much money you’ve “made” or “lost” during that period, which is why it’s often called a Profit-And-Loss Statement (or an Income Statement) in a for-profit company.
Step 3: Review and Validate Your Balance Sheet
It’s not uncommon for a nonprofit’s cash flow to fluctuate, with positive cash flow around annual events or fundraising drives, and negative cash flow at other times of the year. Your Statement of Cash Flows helps ensure that your organization always has enough liquid cash on hand. The statement of activities is the nonprofit parallel to the for-profit income statement. Its purpose is to provide detailed information about your organization’s transactions, showing how your expense allocation and revenue generation further your mission. Financial statements function as an organized system for reporting on your nonprofit’s resources, so your organization is regularly held accountable to itself, its supporters, and its community. Consider developing a financial reporting policy to provide an official reference for how your organization will create and distribute each of the four major statements in a way that maximizes transparency.
Gross receipts are the primary difference between nonprofits and for-profit companies filing a statement of activities. Foundations require nonprofits to provide financial statements when they apply for grants. Major donors also statement of financial position non profit 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.
Months of Cash on Hand
Unlike the balance sheet, which shows the company’s financial position at a specific point in time, the Statement of Cash Flows provides insight into the actual cash flow movements over a period of time. With more detailed information as to the composition of net assets, different conclusions about these organizations’ financial health would be reached. The breakdown for Org A shows it has spent all its available cash on equipment or its facility and has an accumulated operating deficit of $20,000. Org B’s presentation shows it has planned for financial stability by maintaining operating cash and setting aside reserve funds in addition to investing in some equipment. Showing the net assets in this greater detail would help Org A’s board to understand why the organization has positive net assets but is still struggling to pay the bills on time.
Since a nonprofit’s primary purpose is to provide programs that meet certain societal needs, it issues a statement of activities (instead of the income statement that is issued by a for-profit business). If the nonprofit’s board of directors designates some of the nonprofit’s unrestricted assets for a specific purpose, those assets must continue to be reported as net assets without donor restrictions. 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.