financial statements for nonprofits

Previous FASB standards required nonprofits to separately report investment expenses; they can now report investment returns net of investment-related expenses. This change should make it easier for not-for-profits to report investment activities and provide greater comparability among organizations using internal and external investment managers. (In most cases, this option is no longer permitted.) Contributions received for fixed-asset acquisitions will be recorded as net assets with donor restrictions. Internally, these financial statements could be used by management and the Board. Externally, donors, other grantor agencies or lending institutions may request compiled financial statements from a nonprofit, which can be what drives the need for a compilation engagement. In this section, you’ll see that you can compare the net assets based on unrestricted assets, those with restrictions, and the total.

  • Nonprofits have unique guidelines for their reporting, which we will dive into in later lessons.
  • Avantax Wealth ManagementSM is not responsible for and does not control, adopt, or endorse any content contained on any third-party websites.
  • A listing of the titles of the general ledger accounts is known as the chart of accounts.
  • By asking neutral questions of the organization, try to understand if the comments add up to a larger issue with the organization, or if they note problems that are not related to each other.
  • Learn more about the backbone of effective financial statements, your chart of accounts, with this complete guide for nonprofits.
  • The method chosen should be the method that is most user friendly for those reading the financial statements.
  • In this statement, the auditor verifies the accuracy of the financial records based on the information given to him or her.

This statement is based on the accounting formula, assets equal liabilities plus net assets. This equation is mirrored on a for-profit balance sheet; however, net assets are replaced with owners’ equity.

Four Components Of Meaningful Internal Financial Statements For Nonprofits

If your year-end is June 30th, your Form 990 is due November 15th and if you file for an extension the return is due May 15th. Below is a general format for a Statement of Financial Activities recommended for internal reporting purposes. The report for your organization would include more detailed line items in each category, but the objective would be to keep the report at one page in length, although narrative explanations may flow to a second page. Auditors must present a statement on the finances of the corporation to the membership at the annual meeting. In this statement, the auditor verifies the accuracy of the financial records based on the information given to him or her. If the membership does not elect a new auditor at the annual meeting, the current auditor remains in that position for the next year. Contact a nonprofit accountant to craft and interpret your statement of financial position.

The for-profit version of this statement would be the nonprofit income statement. As a nonprofit, financial statements for nonprofits your organization is required to disclose financial information to the public.

Stay Up To Date On The Latest Facts And Insights On Nonprofits

Learn about other ways you can encourage these contributors to donate to your organization. Remember that your annual report has clear goals, and one of your objectives is likely to get people to contribute to this year’s fundraising campaigns. Alternatively, when you talk about the various projects your organization has implemented, make sure to mention the campaign that funded the project. Let readers know that your supporters helped you reach your fundraising goal and how their funds and support impacted your cause. If you take the approach of using multiple methods, consider who the audience is for each type. For less engaged supporters, condensed versions of your annual report are appropriate, while your institutional funders will be interested in a more comprehensive report.

financial statements for nonprofits

The forecast column is equal to the budget column at the beginning of the year and it is updated monthly to reflect anticipated changes from the original budget. Variances between the approved budget and the year-end forecast are shown both in dollar amounts and in percentages, and significant variances are noted and explained. On this report, the notes may extend to a second page, but it is desirable to keep the numbers and columns on a single page. For example, when comparing the major financial statements of a for-profit to a non-profit organization, you’ll notice that even though both are reports of financial value, they differ in title and motivation. The Statement of Functional Expenses is an essential financial statement used to monitor the expenses of the organization.

Gross sales only include sales of products or services but leave out non-sales services like donations. This obviously would not work for a nonprofit organization, and so you use gross receipts because it includes all of your income. Chances are you have heard of an income statement before because they are vital to for-profit companies. An income statement is also known as a statement of activities for nonprofit organizations. As the name suggests, it will show all of the financial activity of your organization and the financial result of your work.

Months Of Cash On Hand

Theoretically, each fund has a separate budget, and this separation in the books ensures the nonprofit is using grants and donations solely for permitted purposes. This includes filing your nonprofit’s financial statement, as we will discuss below. The Statement of Cash Flows shows the cash-related activities of a nonprofit organization for a period. It shows the total cash receipts and total cash payments of the organization. These cash-related activities are further classified into operating activities, financing activities or investing activities. Here is a blank template that can be used to determine your own nonprofit’s statement of financial position.

financial statements for nonprofits

It’s necessary to strike a balance between your overhead expenses and those for program expenses. In general, try to keep at least 65% of your funding going towards your programs, but you can also recognize the necessity to increase some overhead to achieve growth. This statement breaks down your cash flow into your operating activities, investing activities, and financing activities. When you track the cash flow over time, you can gain new insights into the spending habits of your organization, helping to create more accurate budgets over time. Jitasa’s statement of financial position guide, showing what this form might look like for an average nonprofit organization.


The footnotes are critical to understanding the statements and should be read in detail. The statement of cash flows is similar to the one used by for-profit entities. The statement of cash flows presents operating, investing and financing activities to show the sources and uses of cash. The following table compares the main financial statements of a nonprofit organization with those of a for-profit corporation. The second equation you can use to find the liquidity of your organization is the months of cash on hand. Unlike the months of LUNA, this calculation doesn’t take into account the restrictions of assets. You can find it by dividing the average monthly expenses by your total cash and cash equivalents.

An auditor also cannot be an employee or business partner of the corporation. If an appointed auditor no longer meets the independence requirements they must resign immediately. A charitable corporation must have an audit if its revenue exceeds $250,000 in the previous fiscal year. If the charitable corporation’s revenue was between $25,000 and $250,000, it can pass a resolution to have a review instead of an audit. If the charitable corporation’s revenue was less than $25,000 it may pass a resolution to not have an audit or a review. A resolution to not have an audit or to not have a review must be passed by 80% of the members who vote on the resolution.

The direct method reports cash provided by and used for various activities. The indirect method starts with the change in net assets and then reconciles that amount to the cash provided by or used for operating activities. The Statement of Functional Expenses is a unique reporting requirement of nonprofits. If the Statement of Activities does not show expenses by both nature and function as discussed in the previous paragraph, a separate statement showing this breakout is required. Expenses of the Organization must be allocated between program services, general and administrative, and fundraising. General and administrative and fundraising costs are called supporting services.


Corporations that fail to file an Annual Return can be struck from the registry. Charitable corporations that solicit money or property from the public must have an audit committee. The majority of the directors on the committee must not be officers or employees of the corporation. The committee reviews the Financial Statements before they are approved by the directors. “Material weakness” generally indicates that the organization lacks financial capabilities. These comments are sometimes noted if an organization has to issue a restatement for an accounting error made in a previous year.

Annual reports are not usually the place to disclose that required information, but are another tool to help build donor trust, which is important to maintain, and easy to lose. Each state has a “state charity official” who is authorized to investigate financial improprieties in connection with charitable nonprofits.

With each of these services, there are key differences in the scope of the work that the CPA will perform, the cost of the service, and the factors that drive the need for one service over the other. Similarly, the organization should include a projection of cash flow and cash needs. As previously mentioned, capital purchases and debt payments do not impact the bottom line, but are significant drivers of cash needs throughout the year. To be most meaningful, this financial report should be segregated between programs or divisions so that each manager with budgetary authority can track their own progress. Administrative expenses should also be allocated to programs to provide a comprehensive view of each program’s sustainability.

Government and nonprofit organizations aren’t interested in making money, so they use an accounting system called fund accounting. Fund accounting essentially groups financial data together into funds or accounts that share a similar purpose. This way, the organization has a better idea of what resources it has available to complete a specific task. Fund accounting is typically not a topic enjoyed by people who are used to the concepts of for-profit accounting. Over the past two lessons, we discussed how to begin structuring a nonprofit accounting system. First, you set up your chart of accounts, and then you use those accounts when recording transactions. Once those are complete, you can begin to generate reports based on the information you’ve recorded.

Since non-profit organizations don’t have “owners,” its balance sheet is referred to as a statement of financial position . Like a balance sheet, the SOP shows the organization’s assets and liabilities.

Understanding Nonprofit Financial Statements And The Form 990 Category  General

A clear mission and focus.If you could boil down your organization’s values and purpose into a single sentence you would have your mission statement. Since supporters won’t be the only people reading your report, your mission statement needs to be at the very beginning. Readers should know about your organization’s mission and what change you hope to make before jumping into the data. The net assets represent the sum of all the annual surpluses or deficits that an organization has accumulated over its entire history. How many tricks up your sleeve do you need to get your accounting system to do what you need. And after all that, you still have to take an extra step to dump all your data into a spreadsheet to generate financial reports. Finally, websites like GuideStar and also make Form 990 information available.

Financing activities are earnings and expenses from financial activities such as interest earned from savings, or interest paid on loans. For example, when we talked about assets we mentioned cash, but where is this cash coming from? You will look at these donations even further to determine which ones have restrictions and which ones do not. Liabilities are listed in order of the length of obligation, or when you need to pay them.

Our firm has expertise in industries including manufacturing, construction, real estate, financial services, healthcare, government, education and retail. We serve clients from office locations including Birmingham , Atlanta , Tampa , Montgomery , Huntsville , Pensacola , Fort Walton Beach , Destin , Panama City , Cullman , Anniston , Mobile , and Foley . Some organizations find it more useful for internal purposes to record revenue that has been released from restriction in its natural income category. The release shows as a negative number on the “Released to Unrestricted” line and is added as a positive number within the natural income category, for instance foundations or government grants. A for-profit company’s balance sheet takes a snapshot of the company’s assets and liabilities . Additionally, a balance sheet will show what is called owner’s equity (also known as stockholder’s or shareholder’s equity).