The Statement of Activities summarizes the money you’ve received (revenues) and the money you’ve spent (expenses) during a given period. If a grant-maker or a donor gives you money that is dedicated for specific programs, The Key Benefits of Accounting Services for Nonprofit Organizations or that you need to use by a specific date, it’s still an asset. It is completely ok and acceptable to have multiple versions of your financial reports. The key here is to make sure the information is presented in an accurate and useful way.

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Some private foundations also require that grant applicants and grantees submit audited financial statements to be eligible for funding. Let’s learn what makes nonprofit accounting different from traditional accounting and how nonprofit financial statements look like. This financial statement reports the amounts of assets, liabilities, and net assets as of a specified date.

Net Assets

This compares the amount of funds you allocate to your programs and services with the amount consumed by administrative or fundraising expenses. Having sufficient cash on hand helps a nonprofit avoid cash flow crises, which can disrupt service delivery or lead to financial distress. Restricted funds are allocated for specific purposes dictated by your donors, while unrestricted funds can be used for general operations. This makes it different from your statement of activities, which outlines performance over a given period. •  Expenses This section reports all cash that flows out of your organization, including the cost of programs, fundraising, and overhead.

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These revenues and expenses are broken down into the “Without Donor Restrictions” and “With Donor Restrictions” classifications that were referred to earlier for the statement of financial position. The Statement of Activities is like the scoreboard for a nonprofit organization. It shows how well the organization is playing its game of supporting its mission with the resources it has. Let’s find out what this statement is all about, how it’s different from what businesses use, and why it’s key to understanding a nonprofit’s financial health.

What is a nonprofit balance sheet?

A cash flow statement is a critical tool for non-profit organizations as it helps them track their cash position and understand their sources and uses of cash. Another important practice is adhering to specialized accounting standards tailored for charitable organizations. These standards, such as the Generally Accepted Accounting Principles (GAAP) for NPOs, ensure that financial statements accurately reflect the unique nature of non-profit activities. This includes recognizing and reporting donations, grants, and other forms of income in ways that align with regulatory requirements and best practices. The Statement of Financial Position, similar to a balance sheet, outlines the organization’s assets, liabilities, and net assets at a specific point in time.

Why are nonprofit financial statements necessary?

• Your Statement of Cash Flows helps ensure that your organization always has enough liquid cash on hand.
• Not-for-profit financial statements play a crucial role in ensuring transparency and accountability for charitable organizations.
• The table should include the dollar amounts for each category and provide a total for the net assets.
• Their reports will instead be referred to as a Report of Consolidated Financial Statements.
• Good accounting software will also allow directors to compare budgeted amounts to actual amounts and make the necessary adjustments.

When attending in-person isn’t possible, donors and supporters may appreciate a virtual event. However, 63% of people want to see proof that nonprofits follow a set of guidelines and ethical principles. Whether you’re helping people, funding community projects, rehoming animals, or supporting schools, every bit of money needs to be tracked and used wisely. Return to the Internal Reports Introduction page using the link below for greater detail on how to read various reports as well as recommended formatting. In this series, we’ll explore some of the basic accounting concepts that every nonprofit professional should know.

Another challenge in nonprofit financial reporting is a lack of financial literacy among staff and board members. This can lead to misunderstandings of financial statements, poor decision-making, and difficulty in assessing financial health. To avoid this, nonprofits should ensure proper categorization of unrestricted, temporarily restricted, and permanently restricted funds.

The Importance of Net Assets in Nonprofit Financial Statements

• Above all, keeping good accounting records ensures accurate nonprofit audits or financial statements.
• Organizations will separate these expenses by programs, fundraising, and management.
• In contrast, high fundraising or administrative costs can suggest inefficiencies or excessive overhead if they outpace program spending, potentially impacting donor trust and financial sustainability.
• So, if a donor pledges to donate $5 per month, you record $5 of income each month when the donation is received, not when it is pledged.
• A budget shows what your nonprofit plans to spend and earn over a set time period.

In addition, viewing financial statements as powerful tools ultimately contribute to the nonprofit’s success by showing strengths and weaknesses. As a nonprofit, your biggest challenge is likely to be managing your accounting cash flow. Whether you’re preparing for a board meeting, tracking funds, analyzing your budget or just trying to stay on top of your group’s finances, MoneyMinder makes it easy. With just a few clicks, you can generate clear, accurate and actionable reports tailored to your nonprofit’s needs—no spreadsheets, non guesswork.