4 Nonprofit Financial Statements and How to Create Them

Revenue with donor restrictions refers to any funds that donors have designated to specific initiatives, which the nonprofit can’t use as freely. Apart from a donor’s request, there are other reasons funds might be restricted. 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. Meanwhile, adopting these best practices in managing financial statements can enhance your nonprofit’s economic sustainability.

The Nonprofit Accounting Software Buyers Guide

To get started, it’s a good idea to know the definitions of some key terms and concepts you need to be familiar with. Some of these terms are common to accounting tasks for both for-profit businesses and nonprofit organizations. A Statement of Activities includes revenue and expenses during a nonprofit’s reporting period (a fiscal or calendar year) and gives an overview of the changes to an organization’s net assets during that time. 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.

Attract more new funds

Many of these statements are similar to what for-profit businesses file, but some significant differences exist. Sharing these financial statements with donors is one of the best ways to ensure transparency and build trust. Without a customized software solution, many nonprofits download their accounting data to Excel to compile the information in a usable format. However, this can be extremely time-consuming for your nonprofit’s team and take energy away from focusing on your mission.

• It’s important to note that the income statement provides a snapshot of financial performance over a specific period, but it may not capture the full extent of the organization’s impact or long-term sustainability.
• Hopefully, you now have a better understanding of each type of statement and how to prepare them.
• Positive cash flow from operating activities indicates that the organization can support its regular activities without relying on external funding sources, a sign of financial health.
• But it won’t show you what happened to the cash you spent, which is generally what board members want to know.
• Jo-Anne Williams Barnes, is a Certified Public Accountant (CPA) and Chartered Global Management Accountant (CGMA) holding a Master’s of Science in Accounting (MSA) and a Master’s in Business Administration (MBA).
• SoFi does not guarantee or endorse the products, information or recommendations provided in any third party website.

Written Statement Templates in PDF DOC

• The IRS Form 990 might sound scary, but it’s actually your nonprofit’s chance to shine!
• It helps stakeholders understand how the organization generates and uses cash, assess its liquidity, and evaluate its cash management practices.
• The balance sheet presents an organization’s financial position at a specific point in time, usually the end of the fiscal year.
• This section includes items such as accounts receivable, inventory, and property.
• Revenues include donations, grants, program fees, and other sources of income.
• These expenses include salaries and benefits for program staff, program materials and supplies, and any other costs incurred in delivering the organization’s services to its beneficiaries.

Instead, you’ll be reporting on net assets and how you use funds to advance your mission. Avoiding common reporting pitfalls, such as misclassification of funds and lack of financial literacy, further supports transparency and resource management. Together, these sections give a comprehensive view of how a nonprofit generates, spends, and invests its cash, offering essential insights for evaluating financial sustainability and strategic decisions. A positive change in net assets indicates that revenue exceeded expenses, contributing to financial growth and potentially allowing the organization to expand its programs or build reserves. Categorizing expenses by function enables transparency and helps stakeholders understand how efficiently the organization allocates resources.

Nonprofit Financial Statements Examples You Need to Know

This is how you will know if there will be money left for your other programs. Keep a record of everything so that you can monitor the money that is entering your organization. You will know the financial feasibility analysis status of your organization through the statement. Non-profit organizations can know their monthly financial accounting services for nonprofit organizations position through the statement. It is a great way how they can analyze every endowment fund that they received.