Statement of Activities: Guide to Reading This Key Nonprofit Report

Our experienced nonprofit accountants at Capital Business Solutions have all the details you need to create a statement of functional expenses for your or your client’s nonprofit business. Nonprofits must compile their statement of activities to be in accordance with the generally accepted accounting principles . This statement can be incredibly helpful when nonprofits are analyzing their finances and trying to determine where those hard-earned fundraising dollars seem to disappear to. They may also fail to properly disclose the “fund balance” by restriction; however, this is usually corrected on the audited financial statements prepared by the external auditing firm. Functional expense allocation is the process by which a nonprofit organization’s accountant or bookkeeper classifies each expense by its functional classification.

Whether non-profit or for-profit, the impact of inaccurate or late financial information can have a devastating effect on the organization’s long-term financial health. At GrowthForce, we specialize in helping for-profit and non-profit organizations keep their finger on the financial pulse, so they can focus on what really matters – achieving their greatest potential. The team of nonprofit accounting experts at Smith and Howard serves museums, arts + culture institutions, galleries, and various organizations nationwide. Recent years have seen the greatest changes to nonprofit accounting statements in decades, with new requirements that govern how statements are presented. Accounting Standards Updates issued by the Financial Accounting Standards Board have additional implications for nonprofits. Overall, the statement of activities is an essential tool for nonprofit leaders.

Smith & Howard Advisory, LLC and its subsidiary entities are not licensed CPA firms. The entities falling under the Smith & Howard brand are independently owned and are not liable for the services provided by any other entity providing services under the Smith & Howard brand. Our use of the terms “our firm” and “we” and “us” and terms of similar import, denote the alternative practice structure conducted by Smith & Howard PC and Smith & Howard Advisory LLC. While it takes money to start a nonprofit, it doesn’t have to be YOUR money. Tom is a multi-disciplined leader with over a decade of experience in nonprofit operations, technology leadership in government, and over two decades of servant leadership. Expenses in the Statement of Activities include all money flowing out of your organization.

How to Understand a Nonprofit Financial Statement

In the example above, you will see that the amount of temporarily restricted revenue collected during the reporting period was less than the expenses incurred using temporarily restricted funding . Thus, there is a drop in the ending balance of the temporarily restricted net assets. Individuals used to reading for-profit financial statements typically consider this a “loss”; however, nonprofits are not in the business of making a profit , thus this is an incorrect assumption.

Whether you’re receiving https://1investing.in/ from the federal and state governments or a private foundation, you need to record your grant revenue in your statement of activities. Assigning a point person is another great way to stay on top of the finances. Leaders should have one go-to staff member, or accounting partner, who is responsible for analyzing reports and transactions efficiently enough to relay a fair summary of the financial position to interested parties. A competent accounting manager will be able to stay current in the financial details, give regular updates, and reach out at the first sign of an issue. For example, your organization’s cash is the most liquid, so it’s usually listed first in this section of the report. Property and investments are less liquid, so they would fall later in this section.

In order to rent office space, the nonprofit business must pay for rent and utilities. Looking at the area, the organization sees how the total square footage of the office space compares to the number of offices occupied by specific departments. For example, depending on how much of the office space is used by the fundraising department, the organization can see how much of its rent expenses should be allocated toward the fundraising department. With your nonprofit’s statement of cash flow, you can also draw additional conclusions, determining your organization’s free cash flow or your cash flow to debt . 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.

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Ensuring your reports are in check will help your nonprofit make the most of your finances moving forward. Let’s dive in to learn more about the specifics of your nonprofit statement of activities. The process that describes the planning and documentation of financial activities is nonprofit accounting. Nonprofits face different challenges in accounting for their organizations than for-profit companies because they must focus on accountability. For example, some studies show that nonprofits bring in less than 5% of their annual fundraising revenue during July and August.

• The right software can streamline the processes of recording transactions, balancing bank statements, and producing accurate reports.
• The cash flow statement shows a summary of the money coming into and leaving the organization.
• The changes in the balance sheet accounts are then added to this amount to derive at the total increase or decrease in cash.
• Looking at the number of people working on each program at the nonprofit business and the expenses they accrue, one can determine each individual employee’s and program’s expenses.
• By understanding the various sources of revenue and expenses, you can target potential donors and make more informed decisions about how to allocate resources.

Also financial leveraged in your restricted revenue is temporarily restricted revenue. After that time elapses, they can be released from restriction and used as the nonprofit sees fit. Meanwhile, unrestricted revenue can be allocated toward projects, operations, and other expenses as chosen by the nonprofit itself. MIP is today’s leading accounting software for nonprofits and government organizations across the nation. 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. These statements also show your nonprofit is staying compliant with financial regulations.

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Contribution vs. Earned Revenue – With or Without Donor Restriction ClassificationRevenue is the money coming into the organization. Return to the Internal Reports Introduction page for links to greater detail on how to read various reports as well as recommended formatting. Program expenses are expenses that were incurred directly by the various programs of the NFP.

Jo-Anne Williams Barnes, is a Certified Public Accountant and Chartered Global Management Accountant holding a Master’s of Science in Accounting and a Master’s in Business Administration . Jo-Anne is a certified Sage Intacct Accounting and Implementation Specialist, a certified QuickBooks ProAdvisor, an AICPA Not-for-Profit Certificate II holder, and Standard for Excellence Licensed Consultant. Your statement of financial position is a helpful document to develop presentations for stakeholders and board members because it can help you build a case for growth and expansion in your organization’s strategic plan. Your nonprofit can choose to either use the direct or indirect method of reviewing your cash flows. Effective financial management requires your nonprofit to keep an eye on how your nonprofit earns, manages, and allocates its funding. It’s no surprise that donors don’t want to find that their contribution is just being used for more fundraising.

Talk to the accounting experts at Jitasa to gain a better understanding of your nonprofit statement of activities.

It is important for a nonprofit to easily generate this statement to measure if each of their mission based programs has the resources necessary to operate efficiently and can be sustainable for the organization. Disregarding the importance of a budget or neglecting to regularly review financial statements is one of the most common mistakes made by nonprofit organizations. When a budget is compiled, it lays out the annual plan for the organization in terms of the money spent, but also the money received. Regular review of the budget and actual financial reports can give leadership the insight they need to make changes when necessary before finances have gone too far off course. Nonprofit organizations share their financial health with board members, donors, government agencies, and other users. A variety of financial reports and statements are used to report that position.

Get our FREE guide to nonprofit financial reports, featuring illustrations, annotations, and insights to help you better understand your organization’s finances. These statements also help financial leaders show where funding is going, and if your organization’s current programs will have long-term fiscal stability. Through a statement of activities, leadership can determine what programs are working, and where to invest future resources. It is possible to be knowledgeable and active in the accounting and financial details of an organization without being consumed in detail.

While you’re not bringing as much money in, your organization still needs to keep up with your monthly expenses! After all, you never want to miss a bill payment or have to delay a paycheck to your staff members . When your nonprofit compiles your annual/impact report at the end of the year, you include some information about your fundraising revenue and other financial information. This transparency helps build stronger relationships with your donors who want to be sure you’re using their contributions in an ethical and effective way.

The purpose of the statement of activities is to provide users with relevant information about the changes in the net assets of the NFP and how the NFP is using its resources in its programs and services. Reviews the major financial accounting statements that are used by nonprofit organizations. Provides an understanding of the types of financial statements that are used by nonprofit organizations, and how they differ from for-profit financial reporting.

As shown below, this is accomplished by listing each net asset fund in a separate column. Nonprofit organizations are businesses that do not operate with the goal of making a profit as a for-profit business would, but nonprofit businesses have many ways that they earn as well as spend money. These financial transactions need to be reported through what is called a nonprofit statement of functional expenses.

• These statements can be considered analogous to a for-profit organization’s income statement.
• The “Without Donor Restrictions” column is the most valuable tool for monitoring the current year financial activities.
• You determine your net assets after you have subtracted your liabilities from your assets.
• With your nonprofit’s statement of cash flow, you can also draw additional conclusions, determining your organization’s free cash flow or your cash flow to debt .

While assets are organized by liquidity, your liabilities are organized by the date they need to be paid. Listed first are shorter-term liabilities, also known as current liabilities. Listed below those are the long-term liabilities that could be paid over the following months or years. “Smith & Howard” is the brand name under which Smith & Howard PC and Smith & Howard Advisory LLC provide professional services. Smith & Howard PC and Smith & Howard Advisory LLC, practice as an alternative practice structure in accordance with the AICPA Code of Professional Conduct and applicable law, regulations and professional standards. Smith & Howard PC is a licensed independent CPA firm that provides attest services to its clients, and Smith & Howard Advisory LLC and its subsidiary entities provide tax and business consulting services to their clients.

In a non-profit organization, the statement of activities is used in lieu of an income statement. The statement of activities reports the revenue, expenses, and net assets of the nonprofit. These statements can be considered analogous to a for-profit organization’s income statement.