You can use unrestricted funds for any mission-oriented purpose, including paying general operating expenses and salaries. Accounting for nonprofits does not have to put an excessive strain on your nonprofit’s operating budget. Your nonprofit organization can access the expertise of entire teams of bookkeeping and accounting professionals by choosing to outsource your back office function. Even though it’s not an “official” report since it reflects projections instead of actual numbers, a budget is one of the most important financial tools in nonprofit financial management.
- Financial statements also help nonprofits determine the future of their organization.
- Statement of Activities is part of your nonprofit’s accounting requirements and is often included in its annual report or audited financial report.
- The Financial Accounting Standards Board also requires nonprofits to report changes in net assets based on the restriction categories of permanently, temporarily, or unrestricted.
- For instance, if your nonprofit has $55,000 in expenses and $65,000 in total revenue, it would appear that your net assets are positive, at $10,000.
- Fees from rendering services, donor restricted contributions, gains & losses on investments, member dues, program fees and fundraising events.
Investing expenses are the purchases of long-term investments and any payments on long-term investments like buildings, land, equipment, etc. Here’s an example from Code for Science & Society’s Statement of Financial Position from 2021. Our subsequent examples of other statements will be from this same report. To calculate the change in net assets, you subtract net revenue from net expenses.
How can a Statement of Activities report be used?
For instance, if your nonprofit has $55,000 in expenses and $65,000 in total revenue, it would appear that your net assets are positive, at $10,000. However, if $15,000 of your revenue is restricted, you’re actually $5,000 in the red and should cut expenses to maintain a sustainable organization. Be sure to pay attention to the net assets available to your organization under the “without restrictions” column of your statement of activities when analyzing the document for sustainability. If you were to simply subtract the total expenses from total revenue without taking restrictions into account, you might have a false sense of security. Nonprofits receive revenue from a number of different sources, all of which are essential to helping the organization pursue its mission. The majority of this revenue will be recorded as gross in your statement of activities.
- If your organization has deficits in specific periods, those deficits should be offset by surpluses in other periods.
- You can use unrestricted funds for any mission-oriented purpose, including paying general operating expenses and salaries.
- With this breakdown, you can accurately track and report how your organization spends its money.
- Like all nonprofit financial statements, the central role of the Statement of Activities is to provide transparency and accountability to your donors and board.
- Our dedicated team is here to support you in managing your nonprofit’s finances and achieving long-term sustainability.
In this guide, we’ll explain what a nonprofit statement of activities is, why it’s important, and how to create one for your organization. A statement of activities shows your organization’s revenue and expenses over a reporting period and relays that your organization is a good steward of donations and working to accomplish its mission. While for-profits need to compile a profit and loss statement along with their income statement, nonprofits can skip that step because they’re not operating for profit. The statement of activities is simply to show how the organization is using its revenue and expenses to support its mission. Statement of Activities is part of your nonprofit’s accounting requirements and is often included in its annual report or audited financial report. If you’re starting a new nonprofit, a statement of activities is one of the 4 financial reports you must file.
Improved management of resources can help your nonprofit organization to achieve its goals more efficiently and effectively. By understanding how to read and understand this key nonprofit financial report, you can better allocate your resources and improve your organization’s overall performance. By analyzing your nonprofit’s statement of activities, your organization can determine if the expenditures currently allocated for each of your programs are sustainable for the long run. You can use the information in this statement to better understand if now is the right time to cut expenses, provide membership discounts, or secure additional funding through grants or sponsorships. Restricted revenue for a nonprofit is revenue that is to be used to a particular purpose. Those revenues are to be set aside for particular expenses of the nonprofit.
Company and Resources
Financial activities result in either a surplus (increase) or shortfall/deficit (decrease) in the organization’s net assets shown on the Statement of Financial Position (SOFP). Net results are classified as either with or without donor restrictions per FASB (the Financial Accounting Standards Board). The result of each year’s financial activity is shown as the “change in net assets,” that is, increases or decreases to the related net assets categories. The relationship of the SOA to the SOFP is shown in the illustration below. Get our FREE GUIDE to nonprofit financial reports, featuring illustrations, annotations, and insights to help you better understand your organization’s finances.
Types of revenue on a nonprofit statement of activities
Its detailed breakdown offers valuable insights into the organization’s financial performance and health. Put simply, it provides a picture of where your funds come from (revenues) and where they go (expenses). This revenue can stem from a variety of sources, such as donations, private & government grants, fundraising events, and membership dues. Expenses often cover areas like program services, fundraising, and administrative costs and are tracked against funds with donor restrictions and funds without donor restrictions.
SFAS 117 is the primary guidance related to nonprofit financial statements. Statement of activities reports are considered highly important financial statements and are used by executives and accountants to perform monthly financial analysis. Some of the key functionality in this type of report is that it is parameter driven and can be run for a month and across one or multiple organizational units.
Statement of Functional Expenses
Then, list your major achievements, significant donations received, overall impact, the people (volunteers and employees) who made it all possible, and your aspirations for the upcoming year. In a nonprofit, it’s essential to keep track of expenses for the purpose of budgeting and not over-spending. But tracking expenses is also essential to maintaining a good reputation with nonprofit watchdog organizations and attracting donors. Gross receipts are the primary difference between nonprofits and for-profit companies filing a statement of activities. Organizations share these statements to be entirely transparent with their donors. By sharing what funds they collect and how they’re spent, donors can see how their gifts support the nonprofit’s programs and beneficiaries.
Maximize Efficiency and Time Management for Nonprofits
Nonprofits will share this information with the IRS, but they may also share this report on their website and annual report to inform donors about the use of funds. Your organization must also list expenses on your Statement of Activities report. You should split your expenses by programs, administrative, and fundraising costs.
Simply, it reports your organization’s revenue and expenses during a specific period and the difference between them. The Statement of Activities is the Income Statement of a nonprofit organization. The other thing that FASB 117 requires preparing a trial balance of nonprofit entities is reporting of expenses by functional classification. This means that a nonprofit statement of activities should have at least two categories. Want to know the best way to improve cash flow for your organization?
Wellington Zoo also shares further details for each financial statement to explain who is reporting these facts and how they comply with accepted standards. The first and most desired financial statement is the Statement of Financial Position. Nonprofits use this statement to share what their organization owns and what it owes.
This report breaks down your revenue and expenses by restrictions on how or when you may use them. The Statement of Activities is a great way to see where changes can be made to increase revenue or decrease expenses. Nonprofits must compile their statement of activities to be in accordance with the generally accepted accounting principles (GAAP). However, it’s more than just a requirement for nonprofit organizations. 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.
Expenses Section Identifies Functional Areas
This statement can also be used to help you apply for grants and other funding opportunities. If you’re on budget or have a surplus, it will show potential donors that you’re a responsible organization. However, if you’re facing financial challenges, such as overspending, you may need to take a look at your expenses and see where you can cut back or look for other opportunities to get funding. Creating a nonprofit budget template can be a valuable tool to organize your financial data, plan for future expenses, and ensure fiscal responsibility within your organization. A nonprofit statement of activities is a financial statement that shows the income and expenses of your nonprofit over a period of time.
Wellington Zoo’s annual report uses its audited financial statements (from page 45) to show the organization’s financial health. This organization also states that the board and management stand behind these financial statements and includes pictures of their Board Chairperson and Chief Executive Officer. This report identifies funds received without donor restrictions and funds with donor restrictions. Additionally, this report will identify how much money the organization spent on operating expenses and how much money was raised from donations. Using an example from a company, let’s say ABC Corporation wants to plan its upcoming year.