Statement of Activities: Guide to Reading This Key Nonprofit Report

As you can see, the report is divided into the revenue and expenses along the vertical axis. Horizontally, the revenue and expenses are further categorized by restrictions placed on the funds. At the bottom of the report, there’s a section dedicated to the organization’s net assets. Generally, nonprofits will report all their revenue into two categories – without donor restrictions and with donor restrictions.

Neglecting Revenue Recognition Standards

Your nonprofit works to accomplish its mission, and when it comes to communicating that to donors and external stakeholders, no document is as helpful as a statement of activities. The first thing you’ll want to look at when reading a nonprofit statement of activities is the net income. This will give you an idea of whether or not the organization is bringing in more money than it’s spending. If you haven’t seen one for your organization yet or want to try your hand at compiling one, use our template to get started. The expenses your organization incurs should all support your mission in some way, whether that’s by funding daily nonprofit operations or a specific project relevant to your mission’s purpose.

How to Evolve Your Mission to Win More Grants

As a nonprofit, some of your grants and donations may come with donor restrictions. For example, a donor may give your nonprofit $50,000 under the condition that those funds can only be spent on one specific program. You cannot spend that money on anything else, even if your rent is past due or another program needs the funding more. The Statement of Financial Position will help you understand how donor restrictions impact your organization’s financial viability. Nonprofit financial statements are documents that provide a summary of the financial activities and position of a nonprofit organization. They include information on the organization’s assets, liabilities, revenues, expenses, and net assets.

Balance Sheet

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. You probably embarked on your nonprofit journey motivated by social values, but it’s crucial to address https://holycitysinner.com/top-benefits-of-accounting-services-for-nonprofit-organizati/ the financial aspects of these missions as well. One of the most important reports in nonprofit accounting is the statement of activities.

Nonprofit organizations rely heavily on financial reports to make informed decisions about their operations. You can identify trends, assess the effectiveness of revenue sources, and make informed projections for future periods. This helps you develop realistic budgets and allocate resources strategically to achieve your nonprofit’s goals. Yes, many accounting software platforms have built-in templates and features to generate financial statements automatically. These tools can streamline the process and ensure accuracy in your financial reporting.

• The “Without Donor Restrictions” column is the most valuable tool for monitoring the current year financial activities.
• It’s useful for staff members, donors, and board members who rely on this data to make informed decisions about your nonprofit.
• Unfortunately, most accounting information systems are not equipped to adequately present nonprofit accounting data.
• Dedicating resources to professional development enriches staff’s comprehension of intricate accounting matters, promoting a culture dedicated to precision and adherence to standards.

Some might presume that the main reason to prepare a nonprofit statement of activities is simply to keep the IRS happy. However, they also serve an incredibly important function within the nonprofit itself. Well-kept nonprofit accounting records help provide insights on the financial health of its own operations and help board members and leadership make strategic decisions.

• This figure indicates whether the organization has gained or lost resources during that time, directly impacting its overall financial position.
• Income generated from services aligned with your mission, such as tuition fees, ticket sales or workshop fees.
• This allows your organization to make sure you’re on track with your budgeted regular expenses.
• They determine how financial transactions are recorded, reported, and disclosed, and they provide stakeholders with valuable information about the organization’s financial health and performance.
• You should also prepare a Statement of Financial Position (Balance Sheet) and a Statement of Cash Flow.

Accurately classifying expenses provides stakeholders with insights into how resources are utilized to achieve the organization’s mission and maintain operational efficiency. The Statement of Activities is a fundamental document for nonprofit organizations, serving as a financial roadmap that outlines the inflows and outflows of resources. At its core, this statement is designed to provide a clear picture of the organization’s financial performance over a specific period, typically a fiscal year. It is akin to the income statement used by for-profit entities but tailored to meet Accounting Services for Nonprofits: Benefits and How to Choose the Right Provider the unique needs of nonprofit accounting. In summary, the net assets section of nonprofit financial statements provides valuable information about the organization’s financial health and the availability of funds. Understanding the different categories of net assets, including unrestricted and restricted, is essential for effective financial management and decision-making.