Financial statements of nonprofits
By accurately preparing key financial statements, tracking essential metrics, and following best practices in reporting, nonprofits can demonstrate financial responsibility and strengthen their mission impact. Nonprofit financial statements are documents that provide a summary of the financial activities and position of a nonprofit organization. They include information on the organization’s assets, liabilities, revenues, expenses, and net assets.
Functional Expenses Statement
The statement of cash flow shows how money is flowing in and out of various accounts, reflecting how donations are being spent in line with the mission of the nonprofit. The statement of activities emphasizes reporting revenue and expenses versus profit and loss but can be used like a P&L to determine areas of potential concern that need accounting services for nonprofit organizations to be addressed. Despite their differences, some nonprofit organizations have furthered their mission by applying for-profit business approaches while still producing GAAP-compliant external reporting. The statement of financial position is similar to the balance sheet of a for-profit entity, except that a net assets section takes the place of the equity section that a for-profit entity uses.
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- If expenses have risen, explain the reasons and how they align with your mission and plans.
- And because it’s an internal report, you can set it up to show the information however is best for your team.
- Each of the four core reports that nonprofits compile annually summarizes your financial data in a different way, providing unique insights into your organization’s current situation.
- The order of liabilities on your statement of financial position depends on their due date, with short-term obligations listed before long-term ones.
- They help ensure that the organization is following accounting standards and reporting requirements.
- If you use cash-based accounting, you’ll only record cash deposited into your bank during the reporting period.
As shown in the sample statement below, the cash flow starts with the change in net assets – which equals the amount listed on the Statement of Activities. The changes in the balance sheet accounts https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ are then added to this amount to derive at the total increase or decrease in cash. When this total amount is added to the cash balance at the beginning of the reporting period, you will end up with the current cash balance, which will match the amount listed on the Statement of Financial Position.
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The IRS 990 doesn’t really qualify, since it’s done once per year and first-and-foremost as a tax compliance document. 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.
How to Use Your Nonprofit Financial Statements for Strategic Decisions
Even if your organization shows a surplus in its statement of activities, a negative cash flow could indicate potential liquidity problems. The World Wildlife Fund (WWF) features graphs alongside its statement of activities to present its annual report readers with a more visual perspective of its revenue and expenses. With just a glance, it’s easy to see that 85% of total expenses were program-related and that the majority (29%) of operating revenue came from individual contributors. The details in your statement of financial position will come in handy when it’s time to file your Form 990. Additionally, you can use this report to learn more about your nonprofit’s liquidity.
Essential Types of Nonprofit Financial Statements
Yes, nonprofit corporations are required to make their financial statements available to the public. They are also required to complete a Form 990 each year and submit it to the IRS. One of the most important components of an annual report is financial information. In this guide, we’ll explore why it’s important to incorporate financial data into your annual report, which financial components to include, and how to display this information effectively.