Just like puzzle pieces fit together to show a bigger picture, different financial statements connect to give a full view of a nonprofit’s financial health. Let’s explore how these pieces, like the statement of activities, balance sheet, statement of functional expenses, and statement of cash flow, fit https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ together to help nonprofits make informed decisions. A Statement of Activities details financial performance on nonprofit organizations throughout a fiscal year. It contains data on operating earnings, operating costs, non-operating revenues and expenses, and changes in net assets. Pledges, accruals (non-cash, long-term liabilities), depreciation, and subsidiary income and expenses are all included in this report.

Change in Net Assets

Also called a profit and loss, or P&L statement, the income statement, along with a balance sheet and statement of cash flows, are standard financial reports for any business. Out of the four most common financial statements in a nonprofit, the Statement of Activities, also known as the Profit & Loss (P&L), is the broadest. The P&L covers all the organization’s programmatic, fundraising, and administrative expenses incurred The Key Benefits of Accounting Services for Nonprofit Organizations during the period. The statement also reports all the revenue generated during the period, regardless of the source. Well, revenue that is without donor restrictions refers to funds that the nonprofit can use freely for absolutely any purpose related to the organization’s mission.

Importance of Expense Allocation and Its Impact on the Nonprofit’s Efficiency

• An effective Statement of Activities goes beyond numbers to tell a compelling story of your nonprofit’s financial health and mission impact.
• It could be based on time — for example, a grant that is restricted to only a two-year program — or this could refer to endowment funds, where the principal can’t be spent, only the investment income.
• A Statement of Activities details financial performance on nonprofit organizations throughout a fiscal year.
• They are also used for compliance purposes, as regulatory bodies require nonprofits to submit these statements regularly.
• All revenue sections from your organization must also be split between unrestricted and restricted funds.
• It helps stakeholders assess the organization’s ability to meet its short-term obligations, invest in long-term goals, and maintain financial stability.

In some cases, the Statement of Activities may also be referred to as the “income statement” or “statement of revenues and expenses,” though “Statement of Activities” is the most common term among nonprofits. The net assets featured on your nonprofit statement of activities are simply your expenses subtracted from your revenue. This calculation shows the equity of your nonprofit organization and whether you have the revenue to cover expenses, creating a sustainable organization. Generally, nonprofits try to limit their operating expenses as much as possible to lower their overhead. It’s important to find the balance between reducing overhead to fund your mission and ensuring you dedicate enough funding to your operating activities to continue growing and expanding your organization. Nonprofits must compile an income statement every year to be in accordance with the Generally Accepted Accounting Principles (GAAP).

Nonprofit Accounting Standards

These should also be compared to revenue – if high amounts of money are being put into fundraising, with minimal returns, a different strategy may be in order. Effective financial management is the backbone of a thriving nonprofit, ensuring stability, transparency, and informed decision-making. Our free courses provide in-depth knowledge on key accounting principles, budgeting strategies, and reporting requirements to help your organization thrive.

• By analyzing the operating activities section, stakeholders can assess the organization’s ability to generate sufficient cash to cover its ongoing expenses and support its mission.
• For that reason, we default to talking about accrual basis accounting in this article.
• Understanding these differences is essential for anyone involved in the financial management, oversight, or analysis of a nonprofit entity.
• Establishing clear policies and procedures for the investment and utilization of permanently restricted net assets is essential to honor donor wishes and maintain the organization’s credibility.
• 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.

Liabilities and net assets

• Overall, nonprofit financial statements provide a snapshot of your organization’s current financial standing so you can better plan for your nonprofit’s future.
• Program expenses (or program services expenses) are the amounts directly incurred by the nonprofit in carrying out its programs.
• In simple terms, nonprofit financial statements are like a financial snapshot of an organization.
• 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.
• In this article, we’ll elaborate on the purpose of the statement of activities, describe how it’s structured, and explain why it’s so important for transparency and planning.
• Accounting software programs like QuickBooks or Sage Intacct can make gathering, organizing, and presenting information a much more straightforward process.

A nonprofit profit and loss statement, also known as a statement of activities, outlines the organization’s revenues and expenses over a specific period. You now know what nonprofit financial statements are, and why they’re so brilliant (and necessary) to have. So, let’s talk about the four reports that’ll help you keep track of your nonprofit’s finances.

Understanding and managing these types of funds correctly is crucial for compliance with accounting standards and donor requirements. It also ensures that the nonprofit maintains its financial health and capacity to continue serving its mission effectively. The way these funds are reported in the Statement of Activities helps provide clear insight into the financial constraints and capabilities of the organization. First, it helps nonprofit leaders make informed strategic decisions by showing where funds are coming from and how they are being spent.

Understand the change in net assets

Many nonprofits are required to submit their statement of activities to the IRS, and some nonprofits choose to make their statement of activities available to the public on their website. A gain is measured by the proceeds from the sale minus the amount shown on the company’s books. Since the gain is outside of the main activity of a business, it is reported as a nonoperating or other revenue on the company’s income statement.