Budgeting is also complicated when sources of support are not secured at the time the budget is prepared for the upcoming year. This could lead to the use of an account entitled Resource Development in order to balance the budget. The operating activities section of the SCF reports the changes in cash other than those reported in the investing and financing sections. Before we illustrate a sample statement of activities, let’s take a closer look at its components.

What Should a Statement of Activities Include?

If your nonprofit is just starting out, use this annual report as inspiration. Finally, financing revenue comes from the earnings and interest earned on your financial activities and savings. The SOA outlines a company’s profits and expenditures over a period, while the Statement of Financial Position presents its financial position at a specific point in time.

Essential Types of Nonprofit Financial Statements

Income sources can consist of things like grants, donations, and investment income. Expenses can include things like salaries, office expenses, and program expenses. Looking at both of these levels will indicate whether the nonprofit is running at a surplus or a deficit. However, to stay compliant and transparent, a nonprofit must assign appropriate attention to the organization’s financial records. In this article, we focus on one of the financial statements your nonprofit should be generating regularly and using to assess performance, growth potential, and sustainability. If you’re like most nonprofit leaders, you didn’t get to the top of your organization by burying your nose in nonprofit financial statements.

Types of expenses on a nonprofit statement of activities

• Conversely, a significant portion of total expenses dedicated to program services demonstrates a strong commitment to fulfilling the organization’s mission.
• These procedures are the backbone of transparent and reliable financial reporting, crucial for operational excellence and strategic decision-making.
• Another thing nonprofits need to keep in mind is that they do have to file a business tax return even though they are not liable for federal income taxes.
• We also highlighted the words in the first column as they indicate the nature or type of expenses.
• The following steps outline the process, ensuring compliance with accounting standards and providing valuable insights for stakeholders.
• Consequently, the increase in net assets of $22,500 is derived after deducting both revenues and expenses.

By minimizing manual data entry, these tools reduce the risk of human error, ensuring that financial data is accurate and up-to-date. If you don’t keep up with the latest rules for recognizing revenue, you may report your organization’s income wrong on your Statement of Activities. Often, this leads to large audit adjustments, budget vs actual reporting difficulties, and other funding challenges. This statement is crucial for demonstrating how effectively your nonprofit manages its resources. It’s your opportunity to demonstrate financial sustainability and transparency to donors and stakeholders.

Statement of Functional Expenses

Understanding these elements thoroughly is essential for comprehending a nonprofit organization’s financial health and operational efficiency. 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. 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.

Key Differences Between a Statement of Activities and a For-Profit Income Statement

It also helps determine whether a company can obtain enough funding to support accounting services for nonprofit organizations its operations and identify what has to change (rising income, falling costs, or both) to fund critical projects. It helps identify certain programs that cost more and have a low success rate. Conversely, if a project does well, the organization can invest more in it and apply the insights to other projects. This distinction helps organizations track and report how they are meeting donor expectations, ensuring transparency in how funds are allocated and spent.

• This information is crucial for assessing the nonprofit’s financial sustainability and its ability to continue fulfilling its mission in the long term.
• Temporarily restricted net assets, on the other hand, come with donor-imposed restrictions that limit their use to specific purposes or time periods.
• However, not all surpluses need to be spent— a prudent nonprofit can save them away for the proverbial rainy day.
• The nonprofit Statement of Activities is one of the main financial statements of a nonprofit organization.
• If a nonprofit has over $100,000 in annual contributions or $250,000 in assets, they are required to file IRS Form 990.

BAR CPA Practice Questions: Interpreting Financial Statement Fluctuations and Ratios

These articles and related content is the property of The Sage Group plc or its contractors or its licensors (“Sage”). Please do not copy, reproduce, modify, distribute or disburse without express consent from Sage.These articles and related content is provided as a general guidance for informational purposes only. These articles and related content is not a substitute for the guidance of a lawyer (and especially for questions related to GDPR), tax, or compliance professional. When in doubt, please consult your lawyer tax, or compliance professional for counsel. Sage makes no representations or warranties of any kind, express or implied, about the completeness or accuracy of this article and related content. The primary purpose of the statement of activities is to satisfy regulatory requirements, such as Generally Accepted Accounting Principles (GAAP) and Form 990 for the IRS.

A Statement of Activities details financial performance on nonprofit organizations throughout a fiscal year. It contains data on operating earnings, operating costs, non-operating revenues and expenses, and changes in net assets. Pledges, accruals (non-cash, long-term liabilities), depreciation, and subsidiary income and expenses are all included in this report. The statement of activities is a key financial report used by nonprofit organizations to provide an overview of their financial performance over a specific period. It is like an income statement for for-profit businesses but is tailored to the unique needs and structure of nonprofits.

Nonprofit Financial Statements Explained

To calculate the change in net assets, you subtract net revenue from net expenses. This ratio measures your short-term financial health and ability to meet obligations. Investing expenses are the purchases of long-term investments and any payments on long-term investments like buildings, land, equipment, etc. Beyond helping your organization meet legal requirements, they also promote transparency and help you evaluate your performance. While the fiscal year is the most common choice for a Statement of Activities (SOA), it’s not the only option. The fiscal year usually makes sense because it lines up with other key financial documents, making it easier for managers and stakeholders to analyze and compare the numbers.