It also includes cash flows from activities such as grants, donations, and program-related revenue. This ratio measures the percentage of expenses that a nonprofit organization is spending on its core mission. It helps stakeholders assess how efficiently the organization is utilizing its resources to achieve its goals.
General Ledger Accounts and Chart of Accounts
The statement of activities is also important for nonprofits because it can help companies plan their resources and track their progress. Once the total expenses are subtracted from the total collected revenue, the result is a change in Net Assets. Since nonprofits operate with the intention of using all profit to fuel their mission, the change in net assets is typically much smaller when compared with a for-profit entity. Just like the tax return is generated using information from the income statements, the information reported on the Statement of Activities is used to complete the annual Form 990. An accurate and timely Form 990 allows nonprofits to protect their nonprofit and tax-exempt statuses, as well as serve as evidence of transparency and financial stability. However, to stay compliant and transparent, a nonprofit must assign appropriate attention to the organization’s financial records.
The Nonprofit Accounting Software Buyers Guide
As a result, nonprofits will issue a statement of activities instead of the income statement issued by for-profit businesses. From churches to youth organizations to the local chambers of commerce, nonprofit organizations make our communities more livable places. Unlike for-profit businesses that exist to generate profits for their owners, nonprofit organizations exist to pursue missions that address the needs of society. Nonprofit organizations serve in a variety of sectors, such as religious, education, health, social services, commerce, amateur sports clubs, and the arts. The Notes to the Financial Statements provide additional information and explanations to the financial statements.
4 Grants
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. A Statement of Activities shows whether an organization made a profit or a loss during a period of time. It is a financial snapshot that can be used to track the organization’s financial progress. That said, nonprofits can choose other reporting periods, The Key Benefits of Accounting Services for Nonprofit Organizations like the calendar year, depending on their needs or any specific regulations they have to follow.
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. The image above demonstrates the American Red Cross’s operating revenue and gains in 2021 and in 2020. If you’re unsure how to make these distinctions, check out this post on the difference between restricted and unrestricted funding. A Nonprofit Statement of Activities is a comprehensive report that gives a clear picture of an organization’s fiscal operations over a given period. Here’s an example of a Statement of Activities that was a part of the organization’s audited financial statement in 2021 (page 5).
- Expenses are another important component of the nonprofit statement of activities.
- For nonprofits, this means making sure that the organization’s net assets are clearly shown and explained.
- Beyond helping your organization meet legal requirements, they also promote transparency and help you evaluate your performance.
- The section on expenses can be just as illuminating as that on revenues for a nonprofit.
We will not discuss the accounting which is similar to that used by for-profit businesses. If you are not familiar with accounting for businesses or you need a refresher, you will find explanations, practice quizzes, Q&A, and more by visiting our course outline. It is also worth noting that the valuation of assets is based on their historical cost or fair market value. Historical cost represents the original purchase price of the asset, while fair market value is the estimated price that the asset would fetch in the open market.
Want to see a live breakdown of real-life nonprofit financial statements
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 the unique needs of nonprofit accounting.
They’re special reports that help everyone understand how well the nonprofit is doing with its money. Let’s dig into what these statements are, why they’re important, and what goes into them. 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. Think of each fund as a mini organization within your company, each with its own budget and financial statements that track revenue, expenses, liabilities, assets, https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ and equity (net assets).
However, this concept can lead to financial instability and deter the organization’s growth and impact. Your organization must also list expenses on your Statement of Activities report. You should split your expenses by programs, administrative, and fundraising costs. While the goal of a nonprofit isn’t to turn a profit, if you don’t bring in more than you spend, you won’t be able to survive. And a little “profit” helps build your operating reserves to help you survive a slow-fundraising quarter or unexpected expenses. Compared with Feeding America and Save the Children, the financial statements used in this report are easier to follow and provide fewer details.
