A Complete Guide to Demystifying Nonprofit Financial Statements

All nonprofits with gross receipts above $50,000 are required to file an IRS Form 990. This form includes a nonprofit’s figures for revenue, expenses, assets, and liabilities, as well as the salaries of the directors, officers, and executives of the corporation. An organization’s 990 form is publicly available and may be found on their website or on a nonprofit database such as GuideStar. Keep in mind, though, that this report is more accurate and helpful if your organization uses an accrual method of accounting, rather than the cash method.

Support risk management

It guides the way, showing where the organization is going and what obstacles might be ahead. Let’s explore how nonprofits can shine a light on their financial health and keep everything in check. Nonprofit financial statements are like the health checkups that organizations go through every year. They’re special reports that help everyone understand how well the nonprofit is doing with its money. Let’s dig into what these statements are, why they’re important, and what goes into them. Start by reviewing your current financial statements and assessing your accounting software needs.

ACCOUNTING for Everyone

• Charitable organizations must comply with the Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS), depending on their jurisdiction.
• Advancing your mission and doing change-making work is about managing how funds flow from supporters to impact.
• This helps you provide an accurate representation of your organization’s financial position across any time horizon being planned.
• They seek a deeper connection to nonprofits they’ll continue supporting, and trust is paramount.
• Plus, at the bottom of the page, Feeding America adds a link to view its audited financials for anyone interested in delving deeper into its financial situation and activities.
• This rigorous review process, whether internal or external, is crucial for building trust among donors, grantors, and other stakeholders.
• The report represents the relationship between functional expenses, such as program services and support activities, and natural expenses, including salaries, rent, utilities, and supplies.

They are essential for tracking financial health, ensuring compliance, and making informed decisions about resource allocation and organizational growth. For nonprofits, tracking and reporting operating activities are key to understanding how cash moves through the organization. This involves recording revenue and expenses from both the current and previous periods to show how the organization’s net assets have changed. By using gross receipts to record revenue and detailing cash inflows and outflows, including payments on long-term investments like buildings, nonprofits can offer a clear picture of their financial activities.

Get weekly fundraising tips from nonprofits experts

These activities involve the acquisition and disposal of long-term assets, such as property, equipment, and investments. Nonprofits may engage in investing activities to generate income or to support their mission. For example, a nonprofit may invest in stocks or bonds to earn dividends or interest that can be used to fund programs and services. It’s important for nonprofits to carefully manage their investing activities to ensure they align with their financial goals and risk tolerance. By monitoring and evaluating the performance The Key Benefits of Accounting Services for Nonprofit Organizations of their investments, nonprofits can make informed decisions to optimize their financial resources.

• Whether you’re preparing for a board meeting, tracking funds, analyzing your budget or just trying to stay on top of your group’s finances, MoneyMinder makes it easy.
• These financial statements are crucial for stakeholders to assess the financial performance and stability of a nonprofit organization.
• In the context of not-for-profit financial statements, the Statement of Financial Position must adhere to specialized accounting standards.
• In addition to unrestricted net assets, nonprofit organizations may also have restricted net assets.
• You should also include non-current assets on your Statement of Financial Position.
• The operating reserve ratio measures how long a nonprofit can continue its operations without additional revenue.
• Let’s explore how these pieces, like the statement of activities, balance sheet, statement of functional expenses, and statement of cash flow, fit together to help nonprofits make informed decisions.

• 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).
• Consequently, it can help make informed decisions about how to allocate resources and manage risk and report performance transparently.
• Let’s dig into what these statements are, why they’re important, and what goes into them.
• These can be divided into short-term and long-term, based upon when the liabilities are due.
• This report gives donors and oversight agencies insight into how efficiently you’re allocating funds.

The Statement of Functional Expenses details expenses you report on your Statement of Activities by the function they serve. This document is vital to building trust with stakeholders who can easily view how you’re utilizing resources. The Statement of Financial Position is a nonprofit’s version of the balance sheet. The goal is to summarize where your nonprofit stands financially at a certain point in time. Christina Wolfrom is the owner and lead CPA at Complete Balance Accounting & Consulting.

Tips to build a nonprofit balance sheet correctly

• Typically, the finance team prepares these statements, while executive leadership and the board review them.
• However, this can be extremely time-consuming for your nonprofit’s team and take energy away from focusing on your mission.
• Automated features will streamline your data entry, calculations, and report generation, reducing errors and saving you time.
• To effectively implement accounting policies, nonprofit organizations should establish internal controls and procedures.
• The Statement of Functional Expenses reports in detail on your nonprofit’s expenditures.

For-profits list owner’s equity or shareholder funds, while nonprofits show net assets (after liabilities are subtracted from assets). An honest representation of this information is essential for building trust with donors, grant makers, and regulatory bodies, because it’s the best way to showcase your operational integrity. The ultimate guide to selecting the best accounting and financial management software for your nonprofit.