Freight News

Statement of Activities: Reading a Nonprofit Income Statement

[ May 8, 2023   //   Gary G Burrows ]

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. Each of these four statements—including the statement of activities—summarizes your organization’s data differently, providing unique, https://accounting-services.net/ applicable insight you can use to improve your financial management strategy. The first thing you’ll want to look at when reading a nonprofit statement of activities is the net income. This will give you an idea of whether or not the organization is bringing in more money than it’s spending.

• The nonprofit statement of financial position is also known as a balance sheet, which is what for-profit organizations usually call their equivalent statement.
• By providing a clear snapshot of the nonprofit’s economic activities, a Statement of Activities allows stakeholders to assess the organization’s financial health.
• Let’s dive in to learn more about the specifics of your nonprofit statement of activities.

As a nonprofit CEO or Executive Director, understanding the financial health of your organization is crucial for making informed decisions and demonstrating transparency to your stakeholders. One essential financial statement that provides valuable insights into your nonprofit’s activities and resources is the Statement of Activities. In this blog post, we will delve into what a Statement of Activities entails, what should be included in it, provide a practical example, discuss how it can be utilized, and answer some frequently asked questions.

How can a statement of activities improve my nonprofit organization?

The restricted section in your report will educate all who view it that these funds cannot be used to pay rent or cover maintenance fees. Donations your nonprofit receives during events, campaigns, and other times throughout the year. Online websites like Charity Navigator and https://online-accounting.net/ GuideStar also use these reports to rate your organization. Investing revenue is the amount of interest you can make from investments. Investing expenses are the purchases of long-term investments and any payments on long-term investments like buildings, land, equipment, etc.

That means your revenue will also include any donations pledged in the period (whether you collected the cash or not) and any receivables (for services rendered but not yet paid). Also called a profit and loss, or P&L statement, https://simple-accounting.org/ the income statement, along with a balance sheet and statement of cash flows, are standard financial reports for any business. The statement of activities is the nonprofit parallel to the for-profit income statement.

Nonprofit Cash Flow Statement

Nonprofits can record revenue and expenses with a cash or accrual method. The primary reason for this is this method lets nonprofits record revenue when it’s earned. Financial statements also help nonprofits determine the future of their organization. It also allows leadership to find potential financial opportunities and ways to address financial concerns. Sharing financial statements with donors is one of the best ways to ensure transparency and build trust. Nonprofits also have a primary responsibility to their donors when filing and sharing these financial statements.

What is a Statement Of Activities in a Nonprofit

In most accounting systems, expenditures are typically recorded as natural expenses, which are based on the nature of the payment. The nonprofit statement of activities (or income statement) is a financial report that shows your organization’s revenue and expenses over time, ultimately allowing your organization to analyze your net assets. The nonprofit Statement of Activities is one of the main financial statements of a nonprofit organization. Unlike a for profit income and expense report, a statement of activities must segregate financial activity by revenue classes to identify funds received without donor restrictions and funds with donor restrictions. This statement can also be used to help you apply for grants and other funding opportunities.

Changes in Net Assets

Organizations must follow basic accounting practices when filing these statements and find ways to share these details in ways donors can understand. Nonprofits must comply with the IRS and file four financial statements to ensure they follow strict nonprofit regulations. Many of these statements are similar to what for-profit businesses file, but some significant differences exist. If you’re a voluntary health or welfare organization you also must present your expenses in a matrix, which includes both the natural and functional expenses by program, according to FASB Statement 117.

In this guide, we’ll explain what a nonprofit statement of activities is, why it’s important, and how to create one for your organization. Restricted revenue for a nonprofit is revenue that is to be used to a particular purpose. Those revenues are to be set aside for particular expenses of the nonprofit. Unrestricted revenues can be used for any legal expenses that a nonprofit might have. When asking for donations or funds, nonprofits are required to ask donors if they would like their donations to be restricted or unrestricted funds.

Other Resources

These gifts must be posted separately from cash and in-kind contributions. Most in-kind donations will come from companies providing products for an event, silent auctions, and raffles. Jo-Anne Williams Barnes, is a Certified Public Accountant (CPA) and Chartered Global Management Accountant (CGMA) holding a Master’s of Science in Accounting (MSA) and a Master’s in Business Administration (MBA). Jo-Anne is a certified Sage Intacct Accounting and Implementation Specialist, a certified QuickBooks ProAdvisor, an AICPA Not-for-Profit Certificate II holder, and Standard for Excellence Licensed Consultant. The most significant source of revenue for most nonprofits is contributions received. Noncash contributions – This includes transfers of assets that aren’t cash.