A Practical Guide to Nonprofit Financial Statements

Investment strategies must balance risk and return, often guided by the Uniform Prudent Management of Institutional Funds Act (UPMIFA), which establishes standards for investment and spending decisions. It’s an essential tool for nonprofit organizations to ensure financial accountability, transparency, and stakeholder confidence. We will go over each one in more detail below, but the four financial documents are their Statement of Financial Position, Statement of Activities, Statement of Cash Flow and Statement of Functional Expenses. The Statement of Cash Flows is a financial statement that provides information about the cash inflows and outflows of a nonprofit organization. It shows how cash is generated and used by the organization during a specific period of time.

Key Nonprofit Financial Statements

• They provide transparency and accountability to donors, volunteers, beneficiaries, and the public.
• Our team of experienced CPAs and financial professionals is ready to partner with you on your journey toward financial excellence.
• It’s not just about doing good—it’s about showing how effectively you do it.
• The liabilities section includes items such as accounts payable, loans, and deferred revenue.
• This is similar to a for-profit income statement, with elements tailored to suit nonprofit accounting principles.

A statement of functional expenses breaks down its expenses by both nature and function. The report represents the relationship between functional expenses, such as program services and support activities, and natural expenses, including salaries, rent, utilities, and supplies. With a clear calendar, nonprofits can manage their workflow more effectively, reduce last-minute pressures, and ensure that financial statements are ready for timely review and submission. The program efficiency ratio assesses the proportion of total expenses dedicated to programs that directly support the organization’s mission. This metric is valuable in demonstrating how effectively a nonprofit allocates its resources toward mission-driven activities.

Audit and Assurance Services

• The data in your balance sheet can help you figure out the total amount of cash and other liquid assets you have available so you can determine whether your nonprofit has enough financial flexibility to grow.
• They provide financial support to non-profit organisations, research institutions, and community projects, leveraging their resources to address pressing social issues and drive positive social change.
• Looking over Doctors Without Borders Statement of Financial Position we can see everything we should need to know to understand the charity’s financial strengths and weaknesses.
• For nonprofits, having Nonprofit Financial Statement Templates instituted organization-wide promotes uniformity and efficiencies in fiscal management.
• This information can also help a nonprofit determine which revenue strategies are their most and least effective.
• It is crucial for nonprofit organizations to prepare accurate and reliable financial statements to maintain trust and credibility.
• To continue fulfilling your essential role in the community, you must meet IRS reporting requirements, build donor trust, and make informed decisions that contribute to your overall financial sustainability.

If you decide not to go with one, please have a financial audit done just to make sure your 501 tax status is in compliance. This is a one page document that makes it very easy for donors and board members to understand exactly how the nonprofit is doing financially and where the bulk of revenues as well as costs are coming from. Often this is the most important financial statement for internal use and clearly demonstrates how well the charity did in the last year. Liabilities are what your nonprofit needs to pay out or owes regardless if it is a short or long term financial liability. Short term financial liabilities are classified in accounting as Current Liabilities and support things like rent, payroll or short term loans. Long term financial liabilities mean a debt that is being paid over a long period of time.

Understanding Nonprofit Financial Statements

• Fixed assets can also include accumulated depreciation, the amount your fixed assets have decreased in value.
• This indicates that 80% of funds are directed toward program activities, a positive sign of resource prioritization for mission-focused goals.
• Indirect expenses, such as rent or administrative salaries, benefit multiple programs and require allocation using a consistent method, often through a cost allocation plan.
• Many nonprofits include these statements in their annual reports to demonstrate accountability.
• Apart from a donor’s request, there are other reasons funds might be restricted.
• This helps ensure that money designated for specific projects, programs, or objectives is used only for those intended purposes, providing transparency and accountability.

Stewart Hemingson is an MBA marketing graduate on a mission to make content that converts while being informative and engaging. When not agonizing over the best writing choices for SEO, he relaxes by agonizing over the best writing choices for his personal creative writing projects. One way to take a little off your plate is by working with an outsourced accounting professional. An accounting partner can lead the process and leverage their expertise to manage the engagement efficiently before, during, and after the audit. A lot of audit firms have portals for Prepared By Client (PBC) requests and samples. We find it helpful to keep files submitted in a folder on the network so you can refer back to what was submitted in prior years.

Nonprofits must carefully review grant agreements to classify and recognize revenue correctly. Exchange transactions, where goods or services of equivalent value are provided, follow ASC 606 guidelines. Nonprofit accounting involves standards and methodologies distinct from the for-profit sector. Understanding these practices aids in compliance and enhances operational efficiency. Clear financial policies also define acceptable practices for budgeting, expense reimbursement, and other financial activities, ensuring consistency and accountability across the organization.

Do non-profit organizations have a net income?

Nonprofits face the critical task of allocating expenses between program services and support services, a process vital for illustrating the organization’s commitment to its core mission. This approach is crucial for these organizations, as it aligns revenue recognition with related expenses, offering a true reflection of financial health and operational effectiveness within a reporting period. Liabilities include things like salaries, debt, and Everything You Should Know about Accounting Services for Nonprofit Organizations grants to other organizations. When listing your nonprofit’s liabilities, you must list them by when they must be paid and separated by current and long-term liabilities. The idea is to give an overall picture of your nonprofit at a specific time.

Heliconia Scholarship Foundation – This financial report is shared with the donors instead of a traditional annual report. Bank reconciliations are done by gathering your latest bank statements and bookkeeping records. You compare each transaction in your nonprofit bookkeeping software against the bank’s https://nyweekly.com/business/accounting-services-for-nonprofits-benefits-and-how-to-choose-the-right-provider/ records, identifying any discrepancies. Adjustments may be necessary for bank fees, direct deposits, or unrecognized transactions. Bills and vendor invoices need to be categorized and recorded upon receipt. This ensures payments are processed promptly and your financial reporting remains precise.

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—is incorporating your statement of financial position into your nonprofit’s annual report. Many organizations report some high-level financial data in the report itself, using charts and graphs to make it easier to understand. Then, they’ll attach their complete financial statements as appendices in case some readers want to dig deeper. For any nonprofit, effectively and ethically managing expenses is crucial to both executing the mission and upholding public trust.