Similarly, the amount not yet allocated is not an indication of its current market value. You should consider our materials to be an introduction to selected accounting and bookkeeping topics (with complexities likely omitted). We focus on financial statement reporting and do not discuss how that differs from income tax reporting. Therefore, you should always consult with accounting and tax professionals for assistance with your specific circumstances.

Explanation of the Statement of Activities

• Nonprofits most often need balance sheets when filing annual taxes, applying for grants, and appealing to major donors.
• This statement breaks down expenses by purpose—programs, management, and fundraising—providing insight into fund allocation.
• Wellington Zoo’s annual report uses its audited financial statements (from page 45) to show the organization’s financial health.
• But if you’re spending more than you bring in for several periods in a row, you’re headed for trouble.
• Below, you’ll learn about the value of each, what information to report, and how they work together to keep your nonprofit financially sound.
• Kristine Ensor is a freelance writer with over a decade of experience working with local and international nonprofits.

An income statement report makes it easier for your board of directors to track revenue and expenses over time, which can help make long-term financial decisions. Interpreting a non-profit cash flow statement involves analyzing the relationship between cash inflows and outflows, as well as the organization’s overall cash position. For example, if an organization has a negative net cash flow, it may be in a less favorable cash position than an organization with a positive net cash flow.

Advance Your Accounting and Bookkeeping Career

The IRS allows you to claim a tax deduction of up to 100% of your adjusted gross income (AGI) or the amount of your cash contribution, whichever is greater, if you give to a qualified organization. Tickmark, Inc. and its affiliates do not provide legal, tax or accounting advice. The information provided on this website does not, and is not intended to, financial statements for nonprofits constitute legal, tax or accounting advice or recommendations. All information prepared on this site is for informational purposes only, and should not be relied on for legal, tax or accounting advice.

The 4 major nonprofit financial statements

If you use cash-based accounting, you’ll only record cash deposited into your bank during the reporting period. The Statement of Activities further breaks down your revenue and expenses according to any restrictions limiting how or when you may use them. Balance sheets are also income summary an excellent way to track how your organization’s financial status has changed in past years. 3 Please note that funds relating to Currencycloud’s services are not FDIC insured or protected by the Visa Zero liability protection policy.

• The review process typically includes analytical procedures and inquiries of management.
• This statement is a great way to stay informed about how cash resources are being used during the fiscal year.
• In general, this statement breaks down organizational expenses into common categories.
• This delicate balancing act requires technical expertise and careful documentation to satisfy various stakeholder requirements.
• This way, your leadership team, board members, and other stakeholders can have a better understanding of how your nonprofit generates and spends its cash from year to year.

The Statement of Functional Expenses is an essential financial statement used to monitor the expenses of the organization. By breaking down the expenses of the organization into common categories by their function, the organization can easily track the functions with most expenses. This is further used to report the proportion of funds used in main program activities as compared to administration activities.

Financial statements also give donors a better understanding of how the organization is doing. Budgeting for nonprofits can become complex when it involves several overlapping categories, such as grants, programs, function, and nature. The investing activities section of the SCF reports the amounts spent to purchase long-term assets such as equipment, vehicles and long-term investments. The investing section also reports the amount received from the sale of long-term assets.

Furthermore, charity watchdogs such as GuideStar and Charity Navigator often consider nonprofit financial reports when rating profiles on their website. Having clear and accurate statements can go a long way toward establishing trust in potential donors looking for new organizations to support. The Statement of Functional Expenses is also a unique financial statement of nonprofit organizations and shows the expenses of the organization categorized according to the function the expense was occurred in.

Benefits of an Independent Audit

Here are several best practices for preparing nonprofit financial statements. The statement of cash flows (SCF) for a nonprofit organization is similar to that of a for-profit business. The SCF reports the organization’s change in its cash and cash equivalents during the accounting period. During the independent audit, the auditor Airbnb Accounting and Bookkeeping will review the organization’s financial statements to determine whether they adhere to “generally accepted accounting principles” (commonly referred to as “GAAP”). Major contributors to a nonprofit organization typically include donors, volunteers, influential staff and board members. These individuals provide invaluable support through their donations of both finances and time.

2 Long-term liabilities

• Although there are countless ways to organize your nonprofit’s financial information, most organizations compile four main types of reports.
• You can include all restricted funds together or segment them by donation type.
• Notes to Financial Statements are additional disclosures that provide detailed information about an organization’s financial position, performance, and other important aspects of its operations.
• As a nonprofit professional she has specialized in fundraising, marketing, event planning, volunteer management, and board development.
• The MD&A typically has quite a bit more content than the managerial discussions found in the annual reports of business organizations.
• You should split your expenses by programs, administrative, and fundraising costs.

Internal Revenue Service, a nonprofit organization may be granted tax exempt status. Create systems that ensure continuity in your nonprofit accounting practices. Investment decisions can be incredibly complex when managing endowments or restricted funds. It is essential to strike a careful balance between preserving the principal and generating the necessary income.