Nonprofit Financial Statements: Complete Guide with Examples

The net asset section of the Statement of Activities is thus not just a reflection of past and present financial status but also a guide to potential future challenges and opportunities. These distinctions highlight the different financial dynamics and objectives between nonprofit organizations and for-profit businesses. Understanding these differences is essential for anyone involved in the financial management, oversight, or analysis of a nonprofit entity. It’s important that you make sure that all relevant staff are well educated in how to prepare a nonprofit statement of activities. It’s essential they understand how the IRS prefers statements to be prepared—the IRS won’t accept forms without all the proper information. Well put together statements are also essential for reassuring donors https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ and other interested parties as to the competency of your organization.

• Unlike a for-profit balance sheet, the Statement of Financial Position emphasizes mission-driven resources rather than shareholder equity.
• By the end, you’ll have a clear understanding of how it can help you manage your nonprofit’s finances better.
• These restrictions specify the purposes for which the funds can be used and typically expire over time or upon achieving certain objectives.
• Accrual basis accounting means that you record revenues and expenses when they are incurred or earned.
• FastFund Accounting automatically generates your Statement of Activities with the proper segregation of revenue classes and expense functional categories.
• The cherry on top is that an accurate income statement can help your organization complete your annual tax return.

How frequently are these reports generated?

The first and most desired financial statement is the statement of financial position. Nonprofits use this statement to share what their organization owns and what it owes. Nonprofits must comply with the IRS and file four financial statements to ensure they follow strict nonprofit regulations.

Restricted vs. Unrestricted Revenue

Money that flows in and out of the organization due to activities related to debts and borrowing activity, like loan and note payments made each month as well as any income from stocks and bonds. Get 50% Off for 3 Months—track funds with clarity and build trust with every dollar. You’ll also have to present your expenses in a specific way that may differ from how you present them for your audit. You’ll have to exclude unrealized gains or losses from investments, as well as the value of in-kind services and real estate donations.

Before the Deal: Why Financial Preparation is Everything

Yes, nonprofits often undergo audits to ensure accuracy and compliance, especially when required by law or grant agreements. The Statement of Functional Expenses showcases your commitment to transparency by detailing how donor contributions are spent. It also aids in meeting audit requirements and informing stakeholders about cost allocation. Or create reports at the department level to make sure each team member gets all the information they need (and only the information they need). This report can help you explain to your board why you have less cash even after a great fundraising month (maybe you invested in some much-needed equipment). But many times they don’t fully understand what the report is, and what they’re looking for is something that’s not actually in the report.

Get our FREE guide to nonprofit financial reports, featuring illustrations, annotations, and insights to help you better understand your organization’s finances. Get our FREE GUIDE to nonprofit financial reports, featuring illustrations, annotations, and insights to help you better understand your organization’s finances. We strongly recommend working with the experts at a nonprofit accounting firm. Outsourcing your bookkeeping and accounting needs enables you to better focus on your mission with financial management taken off your team’s plate. Plus, when you work with a nonprofit-specific firm, you can rest assured that team members know the ins and outs of how to manage the finances of organizations just like yours. To evaluate your nonprofit’s finances, the IRS requires you to record your yearly revenue and expenses.

This allows your organization to make sure you’re on track with your budgeted regular expenses. Nonprofits must compile an income statement every year to be in accordance with the Generally Accepted Accounting Principles (GAAP). The statement of activities can be incredibly helpful when your nonprofit is analyzing its finances and trying to determine where those hard-earned fundraising dollars go. In reality, successful nonprofits operate similarly to for-profit entities in terms of financial management—they aim to have revenues exceeding expenses. Accumulating surplus revenue allows nonprofits to build a financial cushion, safeguarding them against unforeseen expenses or downturns. It also enables them to reinvest in their mission, expand their services, and innovate, thereby increasing their impact.