What are the Most Important Nonprofit Financial Statements

Donors want to see their donations used effectively and they appreciate stories that highlight the impact of their contributions. They also want to be thanked for their support, featured in annual reports, and have the opportunity to share why they support a given organization. Furthermore, donors want to know how their money is being used and what impact it has had on the organization’s achievements. Nonprofits should showcase the accomplishments of both small and major donors in order to demonstrate appreciation for all levels of support.

Mastering Nonprofit Financial Statements: A Step-by-Step Guide (+ template)

You’ll also have to present your expenses in a specific way that may differ from how you present them for your audit. 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).

• Automated systems also help with compliance and make it easier to produce accurate reports.
• Let’s learn what makes nonprofit accounting different from traditional accounting and how nonprofit financial statements look like.
• They help ensure that the organization is following accounting standards and reporting requirements.
• Three of these reports are similar to for-profit business financial statements.
• More importantly, you’ll maintain accuracy on these critical tax forms to avoid penalties.

Understanding nonprofit financial statements and reporting

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 Statement of Financial Position gives you a snapshot of your financial health by revealing the underlying value of what your organization owns. You’ll discover what information each report includes, how to use it, and additional resources for exploring in more depth.

Detail the Statement of Functional Expenses

The outcome is real-time data to inform strong decision-making that best serves the mission. Unrestricted funds offer the greatest flexibility, used at the organization’s discretion. Temporarily restricted funds are earmarked for specific projects or time frames, necessitating careful tracking and reporting to ensure they’re used as intended. The main purpose of this statement is to help you file your annual taxes with the IRS. However, it’s also a great way to analyze expenses and make data-driven decisions for the annual budget. Nonprofit financial statements are primarily used for financial reporting and IRS requirements.

Government/NBO Funds

Cash basis accounting is simpler and easier to understand compared to accrual basis accounting, which is commonly used in for-profit organizations. However, it may not provide a complete picture of the organization’s financial health. It is important for nonprofit organizations to carefully consider their accounting policies and choose the method that best suits their needs and goals.

What are unrestricted funds and funds with restrictions in a Statement of Activities?

The chart of accounts can be expanded and tailored to reflect the operations of the company. The balance sheet reports the assets, liabilities, and owner’s (stockholders’) equity at a specific point in time, such as December 31. Keeping clear and accurate financial statements is like making sure the lights are on in a nonprofit organization.

How Do Cash Flow Reports Benefit Non-profit Organizations?

Additionally, state governments may have their own requirements regarding taxes or other filings that must be met by nonprofits in order for them to remain in compliance. Understanding these regulations will help nonprofits ensure their financial health and abide by necessary regulations when preparing and presenting their financials. At Capital Business Solutions, our experienced team of non-profit accounting software excerpts knows firsthand how accurate financial reporting helps to build trust and credibility with supporters. This trust can lead to increased funding and other valuable resources for non-profit organizations. That’s why we are here to further help non-profit accounting professionals understand the most important nonprofit financial statements and how they can benefit the non-profit organizations for which you work.

• And because it’s an internal report, you can set it up to show the information however is best for your team.
• The Statement of Activities, similar to the for-profit income statement, details a nonprofit’s revenue sources and expenses.
• The U.S. Internal Revenue Service (IRS) requires some tax-exempt nonprofit organizations to file Form 990 (some can file Form 990-EZ) each year.
• They categorize what the nonprofit organization owes, such as loans or bills that need to be paid.
• The vast majority of nonprofits use relationship management software to create donor profiles, record information and track giving history….
• The owners and authors of Nonprofit Information accept no liability for the views expressed in an article on the site.

1 Assets

This statement also offers insights into the nonprofit’s operating, investing, and financing activities, thus assisting in accounting services for nonprofit organizations identifying over/underspending compared to the cash inflow. With a statement of cash flow, you can assess the ability of the nonprofit to generate cash, how day-to-day operations are financed, its ability to pay short-term debts, and what is being reinvested into the nonprofit. To determine the assets versus liabilities of your organization, you need to list all the assets of your nonprofit that can be used to cover its liabilities and help maintain its programs. Save the Children – Their annual report includes an overview of the finances, including a statement of activities, a balance sheet, and a cash flow statement. A listing of the accounts available in the accounting system in which to record entries. The chart of accounts consists of balance sheet accounts (assets, liabilities, stockholders’ equity) and income statement accounts (revenues, expenses, gains, losses).

You cannot spend that money on anything else, even if your rent is past due or another program needs the funding more. The Statement of Financial Position will help you understand how donor restrictions impact your organization’s financial viability. The statement of cash flows for an organization is typically prepared by a CPA at the close of a financial audit, but some entities prepare the report internally annually. This financial statement shows a summary of where the organization’s money was allocated and spent over a determined amount of time, typically one year. The obligation to file an independent audit report with the state government is generally just one requirement among many in connection with charitable solicitation registration.