8 Step Guide for Reading Nonprofit Reports

This report will show them which of your activities brought cash into your operation during the period and which expenses ate up large chunks of money. But in your audited nonprofit financials, it will be called a Statement of Financial Position. If you or your board come accounting services for nonprofit organizations from the for-profit world, it’s okay to call it a Balance Sheet among your team. Internally you should create and use reports that give you the information you need to run your business effectively.

Step 7: Understand the Generally Accepted Accounting Principles (GAAP)

The following three nonprofits have included financial statements in different ways. Your nonprofit must include natural and functional classifications for all expenses. Organizations will separate these expenses by programs, fundraising, and management. Board members and other leaders can use this statement https://greatercollinwood.org/main-benefits-of-accounting-services-for-nonprofit-organizations/ for better insight into how much is available to pay expenses. Liabilities include things like salaries, debt, and 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.

• This transparency can make businesses feel more confident about partnering with you.
• It is important for nonprofits to track and report on both unrestricted and restricted net assets to ensure transparency and accountability.
• Positive cash flow in financing activities may indicate new funds from loans or donations targeted at specific projects, while negative cash flow often represents debt repayment or distributions.
• While assembling your nonprofit financial statements can seem like a mundane checkbox to mark off every year, they can be highly useful resources for refining your budget, enhancing your fundraising results, and more.
• While it may not be mandatory to publish your balance sheet specifically, it is a key part of the financial statements included in your annual reporting.

What is Nonprofit Accounting?

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. A nonprofit financial statement helps long-term financial planning by providing a clear picture of the organization’s financial health, including revenue streams, expenses, assets, and liabilities. Liabilities in a nonprofit’s financial statements are like the backpack of obligations the organization carries.

Types of Financial Statements for NPOs

A complete set of financial statements can help reveal your organization’s strengths, weaknesses, and areas for opportunity. Use well-structured templates or a customizable software solution to align with GAAP requirements and provide stakeholders with clear and professional financial reporting. The accrual method is especially important if your nonprofit has restricted funds, as it allows you to record donations and grants in the correct period, even if the cash hasn’t been fully utilized yet. Accrual accounting is the process of recording revenues at the time they’re earned rather than when they’re received.

• Nonprofit statements show how donations are used and how the organization is making a difference.
• A declining trend in unrestricted net assets, for example, might signal trouble, while growing program expenses alongside stable contributions could indicate positive momentum.
• As a nonprofit executive or financial officer, understanding nonprofit financial statements is key to making informed decisions and ensuring your organization remains sustainable and compliant.
• Then, you can reference your statement of activities to make more accurate predictions when you develop a new operating budget for the coming year.
• This metric is important because it shows how much of your spending goes directly to mission-related activities.
• This summary should highlight key points from the financial statements, like major changes in revenue or expenses, and any significant achievements or challenges.

Functional areas of the organization often include programs, fundraising, and management. The expenses listed in this statement are broken down further into exact expenses, including salaries, events, and administrative costs. Like your statement of financial position, it can be helpful to include a column for the current year and a column for the previous year in this report. This way, your leadership team, board members, and other stakeholders can have a better understanding of how your nonprofit generates and spends its cash from year to year. While assembling your nonprofit financial statements can seem like a mundane checkbox to mark off every year, they can be highly useful resources for refining your budget, enhancing your fundraising results, and more.