Financial statements of nonprofits

The balance sheet reports the assets, liabilities, and owner’s (stockholders’) equity at a specific point in time, such as December 31. The Statement of Financial Position, also known as the balance sheet, provides an overview of an organization’s assets, liabilities, and net assets at a specific point in time. It shows the organization’s financial position and helps assess its liquidity and solvency. Like most organizations, your nonprofit must decide whether to draft your balance sheet and other key financial statements using either the cash basis or accrual basis accounting. An accurate and transparent nonprofit balance sheet, or nonprofit statement of financial position, is the perfect opportunity to showcase your organization’s financial acumen and build donor trust. The details in your statement of financial position will come in handy when it’s time to file your Form 990.

Free Resources

One of the main financial statements (along with the statement of comprehensive income, balance sheet, statement of cash flows, and statement of stockholders’ equity). The income statement is also referred to as the profit and loss statement, P&L, statement of income, and the statement of operations. The income statement reports the revenues, gains, expenses, losses, net income and other totals for the period of time shown in the heading of the statement. If a company’s stock is publicly traded, earnings per share must appear on the face of the income statement. Nonprofit financial statements are detailed reports that showcase an organization’s financial position, activities, and cash flow.

• Liquidity refers to how quickly an asset can be converted into cash without significant loss in value.
• Additionally, maintaining up-to-date financial records is crucial for annual audits, grant applications, and donor reporting, which are integral components of nonprofit operations.
• It demonstrates how resources are used to advance your mission while maintaining operational efficiency.
• It is important for nonprofits to track and report on both unrestricted and restricted net assets to ensure transparency and accountability.
• It’s important to note that nonprofit financial statements are not just for internal use.
• It provides a clear view of the organization’s financial standing and is required for annual reporting, audits, and grant applications.

Officer, Donor Experience

If you are ready for an accounting system that understands the needs of your organization, check out our guide, How to Save Time and Make Informed Decisions with Blackbaud Financial Edge NXT Reports. When starting a new project or attempting to solve a problem that in any way involves finances, your first stop should be the Statement of Financial Position. This high-level overview provides the clearest picture of financial standing for the organization and often serves as a roadmap to decision making.

• The statement of functional expenses is described as a matrix since it reports expenses by their function (programs, management and general, fundraising) and by the nature or type of expense (salaries, rent).
• We’ve also provided an example nonprofit statement of financial position to guide you.
• Investing activities are an important part of a nonprofit organization’s financial operations.
• You’ll use the statement of financial position to list your assets, liabilities, and net assets.
• Calculating LUNA involves subtracting property and equipment assets from total unrestricted net assets, then dividing by average monthly expenses.

The Importance of Net Assets in Nonprofit Financial Statements

The statement of activities outlines the revenues, expenses, and changes in net assets for a specific period. It ensures that you comply with accounting standards and regulations, such as the Generally Accepted Accounting Principles (GAAP). Nonprofit financial reporting is not just about balancing the books; it’s about providing clear, accurate, and timely information to stakeholders, including the board, donors, and the IRS. By following these ten steps, organizations can ensure their nonprofit financial statements accurately reflect their commitment to fiscal responsibility and mission-driven success. The statement of cash flows for an organization is typically prepared by a CPA at the close of a financial audit, but some entities prepare the report internally annually. This financial statement shows a summary of where the organization’s money was allocated and spent over a determined amount of time, typically one year.

• This financial statement shows a summary of where the organization’s money was allocated and spent over a determined amount of time, typically one year.
• The for-profit balance sheet focuses on the organization’s capacity to generate profits and distribute earnings to shareholders.
• For example, if a donor pledges a large contribution in April, but the check doesn’t arrive until August, you’ll want to make sure you can still pay your bills in the meantime.
• However, there are a number of other key assets that a Statement of Financial Position summarizes for the organization.
• Nonprofits focus on mission-driven resources, distinguishing restricted and unrestricted funds, whereas for-profits prioritize profit generation and shareholder equity.
• The statement of financial position, also known as a balance sheet, is a statement that details the assets, liabilities, and net assets of your nonprofit.

Key metrics used in accounting services for nonprofit organizations solvency analysis include the debt-to-equity ratio among other indicators. Streamline your nonprofit’s financial reporting with our comprehensive Nonprofit Organization Statement of Financial Position Template. Easily showcase your organization’s assets, liabilities, and net assets in a clear, professional format.

Simple Annual Financial Statement Template

Often compared to a balance sheet used by for-profit businesses, this statement provides a snapshot of an organization’s financial status at a specific point in time. It details the nonprofit’s assets, liabilities, and net assets, thus offering a clear picture of what the organization owns, owes, and how much of its funds are available for furthering its mission. A statement of financial position is a formal document that quantifies the financial status of a nonprofit organization at a given moment. Assets include everything the organization owns that has value, such as cash, investments, and property. This method records revenue and expenses in accordance with nonprofit accounting standards. Cash basis accounting is simpler and easier to understand compared to accrual basis accounting, which is commonly used in for-profit organizations.

Categories

The SCF reports the organization’s change in its cash and cash equivalents during the accounting period. If your organization has strong assets, you may assume it’s in a healthy position, but your liabilities may reveal significant debt coming due that your current assets can’t cover. Also, when you’re evaluating your assets, you may need to consider any donor-imposed restrictions. Your organization may have enough cash and other assets on hand to meet its short-term obligations.

It is also important to consider how external factors might impact the interpretation of financial data. Understanding the classification and status of net assets is vital for both internal management and external reporting. It ensures compliance with donor restrictions and helps maintain the trust and confidence of donors, grantmakers, and other stakeholders. It also plays a critical role in strategic planning, enabling the organization to allocate resources effectively and sustain its operations and mission over the long term. This financial statement reports the amounts of assets, liabilities, and net assets as of a specified date. The income statement, statement of cash flows, statement of comprehensive income, and the statement of stockholders’ equity report information for a period of time (or time interval) such as a year, quarter, or month.