First, it helps nonprofit leaders make informed strategic decisions by showing where funds are coming from and how they are being spent. Second, it allows nonprofits to demonstrate their financial accountability and efficiency to donors, granting organizations, and other stakeholders. Effective use of this statement can thus not only support operational and strategic management but also enhance fundraising efforts by reinforcing the credibility of the organization.

• Separate columns classify revenue based on whether it is restricted or unrestricted.
• You can identify trends, assess the effectiveness of revenue sources, and make informed projections for future periods.
• Donors often look at these statements to evaluate the organization’s financial stability and effectiveness in achieving its mission.
• This statement records all revenues, gains, expenses, and losses, reflecting the changes in net assets as a result of operational activities.
• Even if your organization shows a surplus in its statement of activities, a negative cash flow could indicate potential liquidity problems.
• A statement of activities will show your nonprofit organization’s revenue and expenses over a specific reporting period.

Best Practices for Nonprofit Financial Statements

The following three nonprofits have included financial statements in different ways. Sharing these financial statements with donors is one of the best ways to ensure transparency and build trust. MIP Accounting® allows you to easily generate a statement of expense with its 130-plus pre-built reports and custom report-builder. Show your organization is on track to accomplish its mission, and that it handles donor funds responsibly.

Revenue

• However, to stay compliant and transparent, a nonprofit must assign appropriate attention to the organization’s financial records.
• It is important to see the distinction between restricted and unrestricted as only unrestricted revenue can be used to pay bills.
• To effectively implement accounting policies, nonprofit organizations should establish internal controls and procedures.
• To decide which basis is right for your organization, learn more about cash basis vs accrual basis accounting in nonprofits.

In addition to these statements, nonprofit financial reporting may also include notes to the financial statements. These notes provide additional information and explanations about specific items in the financial statements, significant accounting policies, and other disclosures. Their expenses prioritize program services as part of their mission, followed by supporting services such as fundraising and indirect costs. The expenses, revenues, and changes in net assets help the management achieve important objectives.

• Financial management systems built for nonprofits not only automate the reconciliation process but also provide detailed tracking and reporting capabilities for restricted fund management.
• In this way, the same “natural” expense – postage – can be split between three different “functional” categories, depending on its intended purpose.
• The Statement of Activities is similar to an income statement in the for-profit world and helps nonprofits track their financial performance over a specific period, typically a fiscal year.
• When in doubt, please consult your lawyer tax, or compliance professional for counsel.
• Net assets with donor restrictions are usually never below zero, although special reporting may apply to an “underwater ” endowment balance (topic not covered here).
• We can handle your bookkeeping and accounting to deliver accurate financial statements every month that let you know which money you can spend, for which purpose, and when you can spend it.

Nonprofit Statement of Functional Expenses

This is no longer relevant, but it might be useful in looking at historical nonprofit statement of activities. Thankfully, there are plenty of tools out there to smooth the process of accounting for the modern nonprofit. Accounting software programs like QuickBooks or Sage Intacct can make gathering, organizing, and presenting information a much more straightforward process. Your goal is to try and automate as much as you can of revenue tracking, expensive categorization, and report generation, so that you can produce more consistent statements.

We can help you modernize and optimize your accounting systems while also taking the time-sucking bookkeeping tasks off of your hands. And be the trusted financial partner you can turn to for answers to your questions and expert financial advice. We are a virtual outsourced accounting and consulting firm based out of Tucson, Arizona. Our experienced team can help you navigate complex accounting systems & practices, from outsourced accounting to client advisory services. The money that was spent on capital investments, like real estate, equipment, and other fixed assets and also any money received from the sale or benefit of those investments. If you hire an accountant, you will want to oversee it to ensure it’s done correctly.

One important difference between nonprofit and for-profit reporting in this statement is the use of gross receipts instead of gross sales. Essentially, gross receipts refer to the total amount your nonprofit brings in from all sources – donations, memberships, grants, etc. Liabilities include things like salaries, debt, and grants to other organizations. When listing your nonprofit’s liabilities, you must list them by when they must be paid and separated by current and long-term liabilities.

By monitoring cash availability, you can better align financial resources with your mission. If you have multiple endowments, grants or restricted large-dollar donations, it is recommended that you track them each in their own fund. Temporarily restricted funds must be used for a specific purpose or within a specific period. In some cases, the money becomes unrestricted when a timeline ends or the objective is met. In other cases, unspent restricted funds may need to be returned to the grant maker or donor.

Revenue: How much money did you receive?

Having a high level of financial transparency plays a key role in the sustainability and growth of any nonprofit organization. This means that the Statement of Activities reports on all the revenue earned, expenses incurred, and changes in net assets within this annual period. In general, the Statement of Activities is required to paint a holistic picture of a nonprofit’s financial https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ health and ensure fiscal transparency in its operations.

Expense Allocation

Please do not copy, reproduce, modify, distribute or disburse without express consent from Sage.These articles and related content is provided as a general guidance for informational purposes only. These articles and related content is not a substitute for the guidance of a lawyer (and especially for questions related to GDPR), tax, or compliance professional. When in doubt, please consult your lawyer tax, or compliance professional for counsel. Sage makes no representations or warranties of any kind, express or implied, about the completeness or accuracy of this article and related content. Of course, not every nonprofit relies so heavily on donated goods or in-kind donations.