Understanding a Nonprofit Statement of Activities
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. The net assets featured on your nonprofit statement of activities are simply your expenses subtracted from your revenue. This calculation shows the equity of your nonprofit organization and whether you have the revenue to cover expenses, creating a sustainable organization. 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.
This guide teaches the basics of reading and understanding a nonprofit Statement of Activities. Nonprofit accounting can feel complicated for nonprofits without a solid financial background, but there are ways to make filing reports easier. A Statement of Activities is similar to a for-profit income statement and is one of the four financial reports nonprofits must file. Running a nonprofit organization requires talent, hard work, and determination.
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As we mentioned earlier, many nonprofits use these financial statements in their annual reports to show transparency and build trust in their organization. The statement of functional expenses gives donors more details on how the organization spends funds. The IRS requires nonprofits to include this statement when filing Form 990.
- Nonprofits must follow all donor requests, and these donations must be listed under restricted funds on a Statement of Activities.
- Your nonprofit statement of activities is the equivalent of an income statement of a for-profit.
- Tyler places great emphasis on meticulous attention to detail in financial record-keeping, implementing efficient systems to ensure transparency and streamline operations.
This report breaks down your revenue and expenses by restrictions on how or when you may use them. The Statement of Activities is a great way to see where changes can be made to increase revenue or decrease expenses. This report identifies funds received without donor restrictions and funds with donor restrictions.
How can a Statement of Activities report be used?
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. MIP is today’s leading accounting software for nonprofits and government organizations. Designed to let you track unlimited funds and manage your books with ease, MIP Fund Accounting® software offers a simple way to manage intricate financial processes in a single, user-friendly system. 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.
This is useful for tracking the programs that are doing well and those that need more funding. The statement of cash flow shows how cash moves in and out of a nonprofit. Board members and other leaders can use this statement for better insight into how much is available to pay expenses. The statement of activities will also influence Report 990 generation when it comes time for tax season. The basis of Form 990 is the statement of activities and a statement of functional expense.
Nonprofit’s Statement of Activities: with and without donor restrictions
If you need assistance in creating a Statement of Activities tailored to your nonprofit or have any other accounting and financial concerns, book a free consultation with a Velu CPA expert today. Our dedicated team is here to support you in managing your nonprofit’s finances and achieving long-term sustainability. Nonprofits must include natural and functional classifications for all expenses. Organizations will separate these expenses by programs, fundraising, and management.
As a fractional CFO, he goes beyond routine duties, guiding organizations with strategic insights for sound financial decisions. Velu’s services address the unique challenges faced by nonprofits and small businesses, fostering sustainable growth. Tyler places great emphasis on meticulous attention to detail in financial record-keeping, implementing efficient systems to ensure transparency and streamline operations.
How to read and understand a statement of activities
Nonprofit financial statements are useful to donors and contributors to show that your nonprofit has efficiently allocated resources. Statements of activities are useful in assessing the services provided by your organization, its ability to continue those services, and how managers have performed their stewardship responsibilities. A what is considered a high debt nonprofit statement of activities with functional expenses will list all the programs under the expense section. Expenses might include salaries, office supplies, utilities, and other costs for each program. To read and understand a nonprofit financial report, you first need to familiarize yourself with the Statement of Activities.
Your nonprofit’s Statement of Activities must include your organization’s revenue, expenses, and net assets. 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. The relationship of the SOA to the SOFP is shown in the illustration below.
They do need to show how they are using their revenues and expenses to achieve their mission. While your statement of activities shows the sustainability of your nonprofit, your statement of cash flows shows how money moves in and out of your organization. The net effect of all revenues and expenses is a change in net assets, rather than the profit or loss figure found in the income statement of a for-profit entity. Save the Children adds these financial statements and a letter from the independent auditor when providing financial reports.
The purpose of the change in net assets is to articulate the net assets or equity of the statement of financial position. Finally, financing revenue comes from the earnings and interest earned on your financial activities and savings. Nonprofits use the statement of financial position to list their assets, liabilities, and net assets. Financial statements also give donors a better understanding of how the organization is doing. Others support more than one program and must be allocated to the appropriate functions. If a building is shared by several programs, for example, the rent must be allocated using an objective method.
Talk to the accounting experts at Jitasa to gain a better understanding of your nonprofit statement of activities.
This information can be used to make decisions about where to allocate resources and how to improve the organization’s financial health. A Statement of Activities will help nonprofits file Form 990 with the IRS and provide needed transparency to donors, foundations, and corporations. Websites like GuideStar will also use this report to share how your organization uses revenue.
The statement of activities is one of the main financial statements issued by a nonprofit organization. It is prepared instead of the income statement issued by a for-profit business. Nonprofits must compile their statement of activities to be in accordance with the generally accepted accounting principles (GAAP).
The first step in reading a Statement of Activities is to understand its purpose. For instance, if you have a donor that wants to donate to school technology, your report must show that. 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. Most in-kind donations will come from companies providing products for an event, silent auctions, and raffles.