The Statement of Functional Expenses

Liabilities in a nonprofit’s financial statements are like the backpack of obligations the organization carries. They categorize what the nonprofit organization owes, such as loans or bills that need to be paid. Understanding these liabilities is crucial because it helps the organization see how much of its assets are truly available for its mission. This understanding allows nonprofits to ensure their financial health and stability over time. This map, also known as the statement of financial position, shows how much water comes in from rain (donations and grants) and goes out through hoses (expenses like administrative costs).

Reading and understanding financial statements for NPOs

This section will delve more deeply into the key components that make up a Nonprofit Statement of Activities. Understanding these elements thoroughly is essential for comprehending a nonprofit organization’s financial health and operational efficiency. Unlike some other financial forms, it’s important to understand that the Statement of Activities is not a living document; it does not continuously update or change. Instead, it acts like a snapshot, providing a clear and concise picture of a nonprofit’s financial health during a specific time frame—typically the organization’s fiscal year. A Statement of Activities will help nonprofits file Form 990 with the IRS and provide needed transparency to donors, foundations, and corporations.

What are Nonprofit Financial Statements?

Companies are getting more into philanthropy these days, with corporations giving over $21 billion to nonprofits in accounting services for nonprofit organizations 2022 alone through matching gifts, volunteering grants, fundraising matches, and more. They highlight potential vulnerabilities such as cash flow issues, dependency on specific funding sources, and budget variances. This also helps set realistic financial goals, ensure compliance, and build trust with donors and stakeholders by demonstrating fiscal responsibility. Knowing the ins and outs of your nonprofit’s finances helps you make better decisions.

• By understanding how to read and understand this key nonprofit financial report, you can better allocate your resources and improve your organization’s overall performance.
• A nonprofit statement of activities is a financial statement that shows the  income and expenses of your nonprofit over a period of time.
• The Assets section of the Statement of Financial Position provides a snapshot of the nonprofit organization’s resources.
• Then you can track that money through your accounting system to see exactly how much is left, where it was spent, and how much value (net assets) it contributes to your organization.
• Restricted Revenue includes any donations which have donor-placed restrictions on how or when the money can be spent, while Unrestricted Revenue includes any money which can be used for any purpose.
• They categorize what the nonprofit organization owes, such as loans or bills that need to be paid.
• The operating activities section of the Statement of Cash Flows provides valuable insights into the day-to-day financial operations of a nonprofit organization.

Operating Activities

• A gain is measured by the proceeds from the sale minus the amount shown on the company’s books.
• The key here is to make sure the information is presented in an accurate and useful way.
• They allow donors, grantors, board members, and the public to see that funds are managed responsibly.
• Here are the not-for-profit financial reporting requirements to make your report both useful and engaging.
• A Statement of Activities will help nonprofits file Form 990 with the IRS and provide needed transparency to donors, foundations, and corporations.
• Tom is a multi-disciplined leader with over a decade of experience in nonprofit operations, technology leadership in government, and over two decades of servant leadership.

In this article, we focus on one of the financial statements your nonprofit should be generating regularly and using to assess performance, growth potential, and sustainability. Running a nonprofit organization requires talent, hard work, and determination. There are many moving pieces to success including managing people, fulfilling a purpose, and prioritizing events. It is not uncommon for the details surrounding the organization’s financial health to get overlooked.

Another critical https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ aspect of the Statement of Activities is the presentation of changes in net assets. This section highlights the difference between total revenues and total expenses, indicating whether the organization has a surplus or deficit for the period. It also reflects any adjustments due to gains or losses on investments, grants, or other financial activities. This information is crucial for assessing the nonprofit’s financial sustainability and its ability to continue fulfilling its mission in the long term.