Nonprofits must compile an income statement every year to be in accordance with the Generally Accepted Accounting Principles (GAAP). The statement of activities can be incredibly helpful when your nonprofit is analyzing its finances and trying to determine where those hard-earned fundraising dollars go. The numbers for your statement of activities are pulled from your organization’s chart of accounts, and the net assets are accounting services for nonprofit organizations calculated using those numbers after they’re put into the income statement itself. Therefore, you need to make sure that your accounting system is well organized from start to finish, or else you may have errors in your statement. Your organization works hard to raise funds and to use those funds to further your mission. Ensuring your reports are in check will help your nonprofit make the most of your finances moving forward.

Notes to the Financial Statements

Knowing how much cash you have available at any given time is important for maintaining stability in your finances. Donorbox is an affordable and simple-to-use online fundraising tool with powerful fundraising features such as Recurring Donations, Crowdfunding, Peer-to-Peer, Events, Memberships, and more. You can also manage donors, send them automated donation receipts, add offline donations, let donors login and manage their accounts themselves, and more on Donorbox. Operating revenue includes funds from donations, ticket sales, product sales, etc. Operating expenses are your employees’ salaries and the amount spent on equipment and supplies.

• For instance, a high fundraising expense ratio might indicate inefficiencies in fundraising strategies.
• This statement offers a clear insight into the financial activities and overall health of the nonprofit, making it a crucial tool for donors, board members, and other interested parties.
• If a building is shared by several programs, for example, the rent must be allocated using an objective method.
• The way expenses are categorized and reported in the Statement of Activities is not merely a matter of financial recording but a reflection of the nonprofit’s operational priorities and efficiency.
• These grants can be used for a variety of purposes, such as funding specific projects, sponsoring events, or supporting community outreach programs.

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Organizations will separate these expenses by programs, fundraising, and management. Financial activities result in either a surplus (increase) or shortfall/deficit (decrease) in the organization’s net assets shown on the Statement of Financial Position (SOFP). Net results are classified as either with or without donor restrictions per FASB (the Financial Accounting Standards Board). The result of each year’s financial activity is shown as the “change in net assets,” that is, increases or decreases to the related net assets categories. It also helps determine whether a company can obtain enough funding to support its operations and identify what has to change (rising income, falling costs, or both) to fund critical projects.

Wrapping Up: Understanding Your Nonprofit’s Financial Health

• Most in-kind donations will come from companies providing products for an event, silent auctions, and raffles.
• This will give you an idea of whether or not the organization is bringing in more money than it’s spending.
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• Investing in a fund accounting software simplifies processes and reporting, making it easy to avoid potential pitfalls.
• Columns are included to report data for each class of net assets – without donor restrictions, with donor restrictions, and total.

For nonprofit organizations, transparency and accountability are not just regulatory requirements but are vital for gaining and maintaining the trust of donors, members, and stakeholders. A clear understanding of a nonprofit’s financial health is crucial for these entities to effectively manage resources, plan for the future, and communicate their financial status to interested parties. The Statement of Activities is a fundamental tool in this process, serving as a comprehensive report that provides a snapshot of the organization’s financial activities over a specific period. All of these reports inform your organization’s annual tax return (IRS Form 990) as well as various other financial activities. This article will focus on the significant changes to net assets and is the largest impact of the ASU to nonprofit financial statements. These categories are to help the users of the financial statement better understand the restrictions.

• It may also have 50 general ledger accounts for each of its major programs, plus many accounts under its fundraising and management and general expense categories.
• Since many of your expenses will cover salary, insurance, rent, utilities, events, technology, etc., you may find that your restricted funds are higher than unrestricted ones.
• However, the benefits of being transparent in your financial activities go much deeper.
• The SOA contrasts an organization’s net assets with its income and expenses for a fiscal year.
• This statement will analyze all of a nonprofit’s various assets and liabilities.

Do nonprofits have a profit and loss statement?

However, this concept can lead to financial instability and deter the organization’s growth and impact. Changes in net assets is a unique and critical component of the Nonprofit Statement of Activities. It reflects the difference between revenues and expenses over a specific period.

By understanding where your money is coming from and going, you can make informed decisions about future expenditures. This statement is important for nonprofits because it helps to determine where changes can be made to fund necessary projects. The statement https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ of activities is also important for nonprofits because it can help companies plan their resources and track their progress. By understanding how much money an organization has available and where the money is being spent, nonprofits can make informed decisions about their mission, operations, and future. The revenue section contains a breakdown of the major sources of revenue, such as contributions, program fees, membership dues, grants, investment income, and amounts released from donor restrictions.