Nonprofits also have a primary responsibility to their donors when filing and sharing these financial statements. Organizations must follow basic accounting practices when filing these statements and find ways to share these details in ways donors can understand. Nonprofit financial statements are similar to the financial statements for-profit businesses file, but there are some key differences to keep in mind. There are four financial statements nonprofits must file every year to remain in compliance with the IRS. But don’t fret – although it sounds complicated, these standard financial statements are easy to compile with the right tools and guidance.

• The P&L covers all the organization’s programmatic, fundraising, and administrative expenses incurred during the period.
• Expenses can be summarized into high-level categories or broken into specific accounts or classes.
• In this article, we’ll walk you through the four types of statements and show you some examples of how other nonprofits handle their financial statements.

Public support includes categories such as contributions/donations, donated goods, private grants, government grants, and indirect contributions. The revenues and expenses in this report are broken down by unrestricted funds and funds with restrictions placed on them by donors, using separate columns across the statement. Though it is possible to compress these rows down to just a few line items, it is customary to be more expansive in detailing revenues and expenses. Nonprofits use the statement of activities to review changes to their net assets and show revenue and expenses over the accounting year. You can check with GAAP and IFRS practices to ensure you’re correctly categorizing net assets. In this article, we’ll explain more about each financial statement, why and when nonprofits need financial statements and share examples of how organizations have used them in their annual reports.

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This helps improve your impact while also operating transparently with respect to the portion of your funds that go to your mission compared to overhead expenses. This statement breaks your nonprofit’s expenses into categories such as programs, direct mail campaigns, education, management expenses, administrative costs, and labor costs. With this breakdown, you can accurately track and report how your organization spends its money. The nonprofit Statement of Activities is one of the main financial statements of a nonprofit organization. The surplus or deficit shown in the Statement of Activities represents the change in your nonprofit’s net assets over the specified period.

Nonprofits unwilling to share this information should be questioned about their reasons for lack of transparency. Since many of your expenses will cover salary, insurance, rent, utilities, events, technology, etc., you may find that your restricted funds are higher than unrestricted ones. Reading a Statement of Activities can be helpful for understanding a nonprofit’s overall financial picture. This guide will explain what a Statement of Activities is and the key components in it.

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This decision makes sense since donors to a scholarship fund are likely concerned solely with financial details from this organization. The statement of cash flow shows how cash moves in and out of a nonprofit. Board members and other leaders can use this statement for better insight into how much is available to pay expenses. Nonprofits must file four statements every year to comply with IRS rules. Most nonprofits use these statements in their annual or impact reports. Your nonprofit works to accomplish its mission, and when it comes to communicating that to donors and external stakeholders, no document is as helpful as a statement of activities.

The net assets on your statement of financial position are where your organization must list these restrictions. A Statement of Activities is one of the four required financial statements a nonprofit must file. This statement is the equivalent of a for-profit’s income statement. The P&L is important because it provides a high-level overview of how much money the nonprofit is bringing in and where it is being spent. This information can be used to make decisions about where to allocate resources and how to improve the organization’s financial health.

Key to Fulfilling Mission

Conversely, a statement of activities with natural classification would only list the expense types, such as salaries, utilities, office supplies, and others. The statement also provides a snapshot of your organization’s liquidity and flexibility. Knowing how much cash you have available at any given time is important for maintaining stability in your finances. The goal of a statement of activities is to determine whether an organization can fund its activities and if not, to pinpoint where changes can be made to increase revenue or decrease costs. The process of creating a statement of activities is not difficult and should not take long to complete.

What will your CPA look for on your Statement of Activities?

Yes, many accounting software platforms have built-in templates and features to generate financial statements automatically. These tools can streamline the process and ensure accuracy in your financial reporting. We recommend Quickbooks Online as our preferred accounting software. Grant income refers to funds received from government agencies, foundations, other nonprofits, or other grant-making entities to support specific projects or initiatives. It also provides a basis for regulatory bodies to ascertain whether the organization is maintaining its financial responsibility and operating within the prescribed legal parameters.

Types of revenue on a nonprofit statement of activities

Expenses can include things like salaries, office expenses, and program expenses. Looking at both of these levels will indicate whether the nonprofit is running at a surplus or a deficit. Foundations require nonprofits to provide financial statements when they apply for grants. Major donors also may want to see financial statements before giving a significant gift. When a nonprofit shares more about its financial health, foundations and sponsors see that the nonprofit is financially viable and feel safer giving.

Nonprofits use this report to file Form 990 with the Internal Revenue Service (IRS). Nonprofits are an organization that does something for the public good. Nonprofits can fail because of many reasons, such as not having a vision, direction or growth. Expenses in the Statement of Activities include all money flowing out of your organization.

Nonprofits can use this report to file Form 990 with the IRS and provide donors with transparency and trust in the organization. It is important to see the distinction between restricted and unrestricted as only unrestricted revenue can be used to pay bills. When a restriction is satisfied, those monies are moved from restricted to unrestricted and then used for expenses. Restricted Revenue shows funds with donor-placed restrictions on how or when you can spend the money. You can include all restricted funds together or segment them by donation type.

How can a Statement of Activities report be used?

Temporarily restricted funds that must be held for a short period will be unrestricted eventually, but they must be listed under restricted funds until then. Most nonprofits also apply for government, companies, or foundation grant funding. If the net income is positive, that means the organization is making more money than it’s spending.

This statement can be used to track your progress and make sure that your nonprofit is staying on budget. A statement of activities quantifies the revenues and expenses of why compliance is the most important part of business today a nonprofit entity for a reporting period. This is the nonprofit version of the income statement that is used to report the financial results of a for-profit business.

After working in the nonprofit financial management industry for 35 years, I see a difference when organizations use their numbers to make mission-driving decisions. That’s why I started GrowthForce—to serve the overlooked group of nonprofits. With a powerful back office, you can start learning how to leverage your numbers to make data-driven decisions. These decisions can cut costs, generate the biggest ROI, and lead your nonprofit to a healthier, more impactful future. The statement of activities is one of the main financial statements issued by a nonprofit organization. It is prepared instead of the income statement issued by a for-profit business.