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You can use unrestricted funds for any mission-oriented purpose, including paying general operating expenses and salaries. Yes, most nonprofits are required to prepare and present this report for compliance with accounting standards and regulatory bodies. Board members, donors, auditors, and regulators use it to assess financial health, compliance, and effective use of resources. The following sections will delve into the specific components, explore best practices for its creation, and discuss how it can be utilized for strategic decision-making and improved financial oversight.

How to Evolve Your Mission to Win More Grants

• Cash basis accounting means that you record revenues and expenses based on when the cash moves in or out of your business.
• A statement of activities shows your organization’s revenue and expenses over a reporting period and relays that your organization is a good steward of donations and working to accomplish its mission.
• Any cash activity that doesn’t fall into the operating, financing, or investing categories, gets summarized in the supplemental section of the statement of cash flows.
• You should look at your Statement of Activities every month and compare to previous periods.
• However, they also serve an incredibly important function within the nonprofit itself.
• This statement provides a detailed overview of revenues and expenses, offering insights into how funds are utilized and the overall financial health of the organization.
• Your organization must also list expenses on your Statement of Activities report.

This could lead to cuts in programs, staff, and other critical areas if not addressed. Generally, nonprofits try to limit their operating expenses as much as possible to lower their overhead. It’s important to find the balance between reducing overhead to fund your mission and ensuring you dedicate enough funding to your operating activities to continue growing and expanding your organization. Keep in mind that the precision and accuracy of these figures are essential for a clear understanding of your organization’s financial health and operations. In general, the Statement of Activities is required to paint a holistic picture of a nonprofit’s financial health and ensure fiscal transparency in its operations.

What to Expect from a Fractional Financial Controller: Services That Drive Growth

The best way to create financial statements is to prepare them within your accounting software. Unfortunately, most accounting information systems are not equipped to adequately present nonprofit accounting data. If your nonprofit operates multiple programs or projects, it is important to allocate your expenses and revenues accordingly. For effective accounting period review, allocate revenues and expenses in separate columns to accurately assess the financial performance of each program or service. This allows you to track and assess the financial performance of each initiative separately. This report identifies funds received without donor restrictions and funds with donor restrictions.

What are nonprofit financial statements and why are they important?

The statement is prepared in accordance with Generally Accepted Accounting Principles (GAAP) and provides a comprehensive view of the organization’s financial activities. The statement of activities is a key financial report used by nonprofit organizations to provide an overview of their financial performance over a specific period. It is like an income statement for for-profit businesses but is tailored to the unique needs and structure of nonprofits. Consider using accounting software that is designed for nonprofit organizations.

• When a for-profit business has assets, they can usually use them however they want– to buy equipment, give raises, invest in real estate– but nonprofit assets are often more complex.
• The results of each successive fiscal year’s financial activities accumulate on the SOFP, changing the net asset balances.
• The Statement of Cash flows is a relatively simple report that shows if your cash has increased or decreased across 3 segments of your business.
• The journey toward financial transparency is ongoing, but with the right practices in place, the impact of your nonprofit can only grow stronger.
• We can help you modernize and optimize your accounting systems while also taking the time-sucking bookkeeping tasks off of your hands.
• A statement of activities quantifies the revenues and expenses of a nonprofit entity for a reporting period.
• Until these conditions are satisfied, the funds are recorded as liabilities rather than revenue.

Nonprofit Accounting Standards

• If you’re spending more than you’re bringing in for several periods in a row, you need to figure out what’s going on and fix it before it gets too bad.
• As a fractional CFO, he goes beyond routine duties, guiding organizations with strategic insights for sound financial decisions.
• The following steps outline the process, ensuring compliance with accounting standards and providing valuable insights for stakeholders.
• Even though you don’t have to pay federal taxes, almost all nonprofit organizations (the few exceptions are listed here) must file an IRS Form 990 each year.
• You are able to see how your organization is using its funding and how it is accomplishing your mission.
• Automated systems also help with compliance and make it easier to produce accurate reports.
• Any other donations that do not come with a designation can be termed unrestricted funds.

If you haven’t seen one for your organization yet or want to try your hand at compiling one, use our template to get started. For instance, if your nonprofit has $55,000 in expenses and $65,000 in total revenue, it would appear that your net assets are positive, at $10,000. However, if $15,000 of your revenue is restricted, you’re actually $5,000 in the red and should cut expenses to maintain a sustainable organization. The expenses your organization incurs should all support your mission in some way, whether that’s by funding daily nonprofit operations or a specific project relevant to your mission’s purpose. The nonprofit statement of activities separates revenue with and without restrictions so that organizations can see the flexibility in their funding in addition to the sheer amount of it.

Finally, they also enable leadership to find potential financial opportunities https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ and ways to address financial concerns. Leveraging technology and automation can significantly improve the accuracy and efficiency of financial reporting. Financial management systems built for nonprofits not only automate the reconciliation process but also provide detailed tracking and reporting capabilities for restricted fund management.

Nonprofits unwilling to share this information should be questioned about their reasons for lack of transparency. Nonprofits can use this report to file Form 990 with the IRS and provide donors with transparency and trust in the organization. Once you have the change in net assets, you can compare revenue and expenses by significant program activity (or function) to see exactly where you are making or losing money.

• These statements collectively provide a comprehensive overview of your nonprofit’s financial position, performance, and cash flow.
• The Statement of Cash Flows is one of the core external nonprofit financial statements required for an independent audit, so you should be familiar with it.
• With purpose-built features for nonprofits, you’ll save time, reduce errors, and gain deeper insights into your financial health.
• Accurate and detailed revenue reporting within the statement of activities is fundamental for demonstrating financial accountability and building trust with stakeholders.
• Non-cash gifts such as materials, venues or volunteer labor in support of your campaigns and operations.

This article will discuss what a statement of activities entails and why nonprofits need them. Your nonprofit Income Statement shows the year-over-year income and spending trends. You should look at your Statement of Activities every month and compare to previous periods. Identify trends and changes in sources of revenue, expenses, and changes to net assets. If you use cash-based accounting, you’ll only record cash deposited into your bank during the reporting period.