Nonprofit Statement of Financial Activities

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. 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. FastFund Accounting automatically generates your Statement of Activities with the proper segregation of revenue classes and expense functional categories.

Importance to Nonprofits

There are operating expenses, which include costs of utilities, payroll, building maintenance, office supplies, materials needed for projects, and more. The expenses of the real estate tax, income tax, and interest paid on mortgages or other debt are also deducted from the income to calculate profit. It provides a clear summary of a nonprofit’s revenues, expenses, and net asset changes for a period, supporting transparency and informed decision-making. Unlike a for-profit balance sheet, the Statement of Financial Position emphasizes mission-driven resources rather than shareholder equity. Additionally, nonprofits distinguish between restricted and unrestricted funds, reflecting donor intentions. For that reason, we default to talking about accrual basis accounting in this article.

Related AccountingTools Courses

• By setting these safeguards, nonprofits can prevent errors and fraud, enhancing the reliability of their financial statements.
• By providing a clear snapshot of the nonprofit’s economic activities, a Statement of Activities allows stakeholders to assess the organization’s financial health.
• This will give you an idea of whether or not the organization is bringing in more money than it’s spending.
• A Statement of Activities, often compared to the Income Statement of a for-profit business, is a critical financial document for any nonprofit organization.
• These may include personnel costs, professional services, office expenses, occupancy, utilities, and depreciation.
• This document also allows your organization to track changes in its net assets between the beginning and the end of the year.
• It enables regular financial check-ins, with your board reviewing the statement to ensure ongoing financial health.

They provide insight into the organization’s overall financial health and stability. Understanding the composition of net assets is crucial for stakeholders to assess an organization’s financial position. Permanently restricted net assets are the most constrained, as they are intended to be maintained in perpetuity. These assets often form the basis of endowments, where the principal amount is preserved, and only the investment income generated can be used. This ensures a lasting impact, providing a steady stream of income to support the nonprofit’s mission over the long term.

Why Your Nonprofit Needs to Report a Statement of Activities

By compiling a statement of activities, your nonprofit can evaluate the sustainability of its programs and determine whether you need to raise more funds to cover your projected expenses in the coming year. For instance, you might decide to focus on marketing matching gifts to generate the revenue you need to expand one of your core programs. Nonprofit organizations, by definition, operate with the principle of focusing on accountability, not profitability. Any revenue of income left over after all of the business expenses are paid is required https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ to be put back into the organization for the purpose of funding the mission.

Best Practices for Mastering Nonprofit Financial Statements

This approach ensures that the organization does not prematurely recognize revenue that it may ultimately have to return if the conditions are not met. If you’re looking to understand how your nonprofit is spending its money, the statement of activities is a valuable resource. It breaks down each type of spending into specific details, such as credit card payments and employee salaries. This information can help you identify potential problems early on and solve them before they become larger financial issues. This statement is important for nonprofits because it helps to determine where changes can be made to fund necessary projects.

• By minimizing manual data entry, these tools reduce the risk of human error, ensuring that financial data is accurate and up-to-date.
• This analysis not only helps in maintaining financial stability but also supports the organization’s capability to fulfill its mission effectively over the long term.
• You therefore need to gather the necessary information well before that and publish it in your statement of activities.
• Nonprofits must follow all donor requests, and these donations must be listed under restricted funds on a Statement of Activities.
• Non-cash gifts such as materials, venues or volunteer labor in support of your campaigns and operations.
• This type of document allows both the Internal Revenue Service and the public to look at the nonprofit’s finances.
• If you need help or have any other accounting concerns, book a free consultation with a Velu CPA expert today.

This could lead to cuts in programs, staff, and other critical areas if not addressed. You can publish the statement of activities on your website, in your annual report, or share it directly with your donors and any grant-making organizations you depend on. Ultimately, the statement of activities affirms your organization’s long-term sustainability, because good planning and financial accountability are a strong basis for attracting new donors. It details how your organization’s resources have changed, covering funds raised, expenses paid, and the resulting net change in assets. Generally, nonprofits try to limit their operating expenses as much as possible to lower their overhead. It’s important to find the balance between reducing overhead to fund your mission and ensuring you dedicate enough funding to your operating activities to continue growing and expanding your organization.

The Statement of Activities measures the impact of the company’s revenues and expenses and gives users the total change in net assets. The activity reported on this statement covers a specified period of time, usually one month or one year. Managing your nonprofit’s finances is no small task, but there are four standardized financial statements that provide clear benchmarks to help you make decisions. Without them, it’s nearly impossible to assess your organization’s performance or plan for the future.

• Commercially available accounting software offers adjustable templates that you can tailor to the revenue or expense categories that are most relevant to your operation.
• Month-to-month comparisons are crucial for detecting trends, anomalies, and areas of concern in your financial activities.
• The right software can take your nonprofit accounting efforts to the next level.
• It’s important that you make sure that all relevant staff are well educated in how to prepare a nonprofit statement of activities.
• You’ll use the statement of financial position to list your assets, liabilities, and net assets.

Understanding how resources are being utilized in program delivery helps organizations make strategic decisions to enhance program effectiveness and efficiency. The nonprofit statement of activities provides a clear breakdown of the revenue generated from donations and grants, allowing organizations to assess the effectiveness of their fundraising efforts. It also helps donors and funders understand how their contributions are being utilized and the impact they are making.

Search form

The numbers for your statement of activities are pulled from your organization’s chart of accounts, and the net assets are 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. As you can see, the report is divided into the revenue and expenses along the vertical axis.