4 Nonprofit Financial Statements and How to Create Them

This can be time-consuming, but it’s not as expensive as hiring an accountant. Yes, nonprofits often undergo audits to ensure accuracy and compliance, especially when required by law or grant agreements. Regularly reviewing this and other financial statements will help you make well-informed decisions. Yes, Aplos provides easy tools to create customized Statement of Activities reports, ensuring accuracy and compliance with nonprofit standards.

Nonprofit Statement of Activities: All You Should Know (+FAQs)

This includes things such as your non-profit’s bank statements, tax returns, and investment statements. Once you have all of this information, you can start creating your statement of activities. Together, these reports form the statement of activities backbone of nonprofit financial management, ensuring informed decision-making and effective resource allocation.

• But in a nonprofit, they’re called a Statement of Financial Position and a Statement of Activities.
• This financial statement is similar to the balance sheet issued by a company.
• Since functional expenses are a big theme for many investors, particularly the percentage of money you’re spending on programs, most nonprofit Statement of Activities are organized according to functional expenses.
• By making these changes, the NFP is able to identify its Operating Change Before Depreciation, which the NFP views as its net results from operating activities for the year.
• The final figure offers a snapshot of your nonprofit’s financial trajectory, guiding decisions for the next reporting period.

What is a Statement of Activities Report

Like your statement of financial position, it can be helpful to include a column for the current year and a column for the previous year https://www.gamaltours.com/ebitda-meaning-and-example-calculations/ in this report. This way, your leadership team, board members, and other stakeholders can have a better understanding of how your nonprofit generates and spends its cash from year to year. The details in your statement of financial position will come in handy when it’s time to file your Form 990. Additionally, you can use this report to learn more about your nonprofit’s liquidity. For instance, by dividing your total current assets by your total liabilities, you can calculate your current liquidity ratio.

Net Income

A clear, accurate statement of activities lets you see where every dollar comes from and where it goes. With this report, you’ll see the shortfall in time to adjust tuition rates, find a sponsor, or trim costs before next season. We’ll help you determine if outsourcing your accounting and bookkeeping is the right decision for your organization. We can help you modernize and optimize your accounting systems while also taking the time-sucking bookkeeping tasks off of your hands.

This section is where you record income and expenses linked to their accounts and funds. You might appear to have a positive bottom line, but if most of your revenue is restricted, your unrestricted cash could still be negative. This report is a tool your leadership team can actually use to make decisions. The statement of activities enables leaders to make informed decisions about resource allocation and future planning. The expense section reports all cash that flows out of your organization, including pending expenses—those you know you’ve incurred but haven’t spent the money yet, such as payroll for hours worked the previous month.

• Organizations should consider adopting the Unified Chart of Accounts for Nonprofits (UCOA).
• For instance, by dividing your total current assets by your total liabilities, you can calculate your current liquidity ratio.
• These procedures are the backbone of transparent and reliable financial reporting, crucial for operational excellence and strategic decision-making.
• Generally, nonprofits try to limit their operating expenses as much as possible to lower their overhead.
• This practical example and template will help you better understand how the information discussed earlier comes together in a real-life document.
• A clear, accurate statement of activities lets you see where every dollar comes from and where it goes.
• For instance, you might decide to focus on marketing matching gifts to generate the revenue you need to expand one of your core programs.

For purposes of illustration, assume that ABC Foundation has $291,800 (discounted to present value) of pledges for capital additions, of which $45,000 is classified as current. The remaining $100,000 of contributions receivable is unrestricted as to purpose but have an implied time restriction because the amounts are not available until received in the following year. Contributions receivable are presented net of estimated uncollectible amounts and discounted to present value, unless expected to be collected within 12 months. This should make that method more appealing because it reduces the complexity in preparing the statement, as well as its overall length. • A $200,000 annual grant from a healthcare foundation that requires the center to provide a minimum of 2,000 free patient screenings contribution margin each year.

• By setting these safeguards, nonprofits can prevent errors and fraud, enhancing the reliability of their financial statements.
• The largest nonprofits in the US can accumulate annual contributions totaling billions of dollars, but the statement of activities breaks the figure down into just a few lines.
• The cherry on top is that an accurate income statement can help your organization complete your annual tax return.
• This classification is critical as it helps stakeholders understand the constraints on the organization’s resources and how these constraints affect the nonprofit’s capacity to utilize funds for various purposes.
• While businesses are organized to generate profits, nonprofits are organized to address needs in society.
• To avoid this mistake, organizations must develop robust systems for tracking and reporting on restricted versus unrestricted funds.

Separating each stream by source also clarifies whether different donor conditions are applicable (e.g. unrestricted, temporarily restricted, or permanently restricted). If that’s the case, your stakeholders (donors, grantors and regulators) will appreciate being able to see how each of those sources contributes to the mission. Expenses can be summarized into high-level categories or broken into specific accounts or classes. 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. It’s important to note the donations that come with restrictions and without.