Financial statements prepared with care and accuracy help nonprofits continue changing lives and making a difference. Nonprofits address diverse societal needs, but their financial structures require specialized reporting to ensure transparency and accountability. Accurate financial reporting is essential for maintaining donor trust, meeting regulatory requirements, and making informed management decisions. The nonprofit Statement of Financial Position, also known as a balance sheet, provides information as of a specific date about your organization’s financial health.

Nonprofit Financial Statements: Complete Guide with Examples

An organization will receive a management letter if the auditor has comments for the board or financial management team. The comments are classified as “deficiency,” “significant deficiency,” and “material weakness,” and will give you a sense of the areas in which the organization can improve. Some smaller or newer organizations are fiscally sponsored, which means that they are projects or organizations that do not have tax-exempt status. Rather, a larger 501(c)(3) receives donations on their behalf and transfers the funds through a “grant” to them.

Statement of activities (income statement)

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. In this guide, we’ll break down the 10 most important nonprofit financial statements examples in plain English (no accounting degree required!) and show you how they can transform your nonprofit’s financial game. The Statement of Financial Position, https://nyweekly.com/business/accounting-services-for-nonprofits-benefits-and-how-to-choose-the-right-provider/ also known as the balance sheet, provides an overview of an organization’s assets, liabilities, and net assets at a specific point in time. It shows the organization’s financial position and helps assess its liquidity and solvency. In this section, you can find information about the cash generated from the sale of goods or services, as well as any cash payments made for operating expenses such as salaries, rent, and utilities.

• This report is more like a financial overview of the entire organizations financial health.
• Unfortunately, most accounting information systems are not equipped to adequately present nonprofit accounting data.
• That means must use accrual-basis accounting and record transactions in a specific way.
• Nonprofit financial statements also have specific reporting requirements and use fund accounting.
• Monitoring these changes over time provides valuable insights into the organization’s financial sustainability and reveals how effectively resources are being utilized to support its mission.
• A systematic approach for organizing funds for projects and operational expenses.

Statement of Cash Flows

• Obligations the organization owes to others, including accounts payable, loans, and deferred revenue.
• Overall, nonprofit financial statements provide a snapshot of your organization’s current financial standing so you can better plan for your nonprofit’s future.
• It can help to identify areas where improvements can be made while also giving a clear picture of the overall financial health of the nonprofit.
• These individuals provide invaluable support through their donations of both finances and time.

Nonprofit accounting involves standards and methodologies distinct from the for-profit sector. Understanding these practices aids in compliance and enhances operational efficiency. These may include personnel costs, professional services, office expenses, occupancy, utilities, and depreciation.

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The Statement of Activities is a key report that shows how your nonprofit is performing over a specific period (usually a year). It details all the revenues and expenses, highlighting how resources are used to achieve the organization’s mission. Nonprofit financial statements are a set of reports that demonstrate how well a nonprofit is doing financially. They show how much money the organization has, how it spends its money, and what Accounting Services for Nonprofits: Benefits and How to Choose the Right Provider its assets and liabilities are. Most importantly, be sure your nonprofit financial software provides the accounting tools for nonprofit organizations’ unique requirements.

If a grant-maker or a donor gives you money that is dedicated for specific programs, or that you need to use by a specific date, it’s still an asset. But in your audited nonprofit financials, it will be called a Statement of Financial Position. Internally you should create and use reports that give you the information you need to run your business effectively. That might mean using cash-basis accounting, tracking your gains or losses at the program level, or more. Kristine Ensor is a freelance writer with over a decade of experience working with local and international nonprofits.

• The key here is to make sure the information is presented in an accurate and useful way.
• Nonprofit expenses are categorized to provide transparency in resource allocation, allowing stakeholders to see exactly how funds are distributed and used within the organization.
• The Office of Foreign Assets Control at the US Department of the Treasury maintains a list of individuals and organizations who have been sanctioned in some way.
• Temporarily restricted net assets or funds are usually funds contributed by a donor who has placed conditions and restrictions on what the funds are to be used for.
• This rigorous review process, whether internal or external, is crucial for building trust among donors, grantors, and other stakeholders.

The more transparent a nonprofit is, the better for the financial success of their organization and its ability to fulfill its mission. 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. Each type of organization plays a role in their communities, but by understanding nonprofit accounting, you get a better insight into how organizations prioritize finances.

Where to Find Nonprofit Financial Information

Another important aspect of the additional disclosures is the disclosure of potential risks and uncertainties. Nonprofit organizations face various risks and uncertainties that may impact their financial stability and ability to achieve their mission. By disclosing these risks, organizations can inform stakeholders about the potential challenges they may face and the steps they are taking to mitigate them.

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Let’s review what needs to happen to create these financials and how they tell the story of your organization to donors and board members. There are four key financial statements that are tied to nonprofit accounting, which we will explore below. With these financial statements, your nonprofit organization can clearly demonstrate its accountability to donors and board members. This step-by-step guide will teach you everything you need to know about reading nonprofit reports reports. By the end, you’ll be able to confidently analyze your organization’s financial health and make informed decisions about where to allocate its resources. A nonprofit’s revenue sources are the lifeblood that sustains its ability to fulfill its mission.