Financial statements of nonprofits

Let’s dig into what these statements are, why they’re important, and what goes into them. The Statement of Functional Expenses supports internal management by providing insights into cost structures and areas that may require financial adjustments. It enables not-for-profit organizations to make informed decisions regarding budgeting, cost control, and resource allocation. This statement, therefore, is not only a tool for external reporting but also a valuable resource for internal financial management and strategic planning. Most importantly, be sure your nonprofit financial software provides the accounting tools for nonprofit organizations’ https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ unique requirements.

Revenue model structure

Accrual accounting is used to provide more accurate data about any changes in finances over time, allowing for informed predictions of future performance. The statement of financial position (SOFP) includes assets, liabilities, and net assets which can be compared to industry standards or year-on-year results to assess overall performance. At Capital Business Solutions, our experienced team of non-profit accounting software excerpts knows firsthand how accurate financial reporting helps to build trust and credibility with supporters.

Investing activities

External (audited) nonprofit financial statements must follow Generally Accepted Accounting Principles (GAAP) standards. That means must use accrual-basis accounting and record transactions in a specific way. As we mentioned earlier, many nonprofits use these financial statements in their annual reports to show transparency and build trust in their organization. Adding to the confusion, this year nonprofits went from three categories of net assets to two. This means that, on top of categorizing restricted assets, nonprofit organizations also have to report on net assets both with and without donor restrictions. This data should ideally already be stored and readily available in your accounting software.

What Is AccountsBalance?

Meanwhile, adopting these best practices in managing financial statements can enhance your nonprofit’s economic sustainability. In addition, you build trust with stakeholders and show every dollar used to service your cause. Gathering all financial data for the fiscal year is a critical task that underpins the integrity of nonprofit financial statements.

• This statement is in lieu of the Income Statement that is used by for-profit companies, and it reports the change in permanently restricted, temporarily restricted, and unrestricted net assets.
• The statement of financial position (SOFP) includes assets, liabilities, and net assets which can be compared to industry standards or year-on-year results to assess overall performance.
• Fund accounting requires that organizations keep track of these funds and report them on their Statement of Financial Position.
• These net assets represent what the nonprofit truly owns after all its bills are paid.
• These articles and related content is not a substitute for the guidance of a lawyer (and especially for questions related to GDPR), tax, or compliance professional.
• This comprehensive process involves collecting detailed records of donations, grants, investments, and all categories of expenses.

• In other words, financial statements for nonprofits are reports that show how well a nonprofit is doing with money.
• While the goal of a nonprofit isn’t to turn a profit, if you don’t bring in more than you spend, you won’t be able to survive.
• Net assets represent what the organization owns and what it owes, sorted in order of liquidity, or how easily they can be turned into cash.
• The Statement of Cash Flows is a financial statement that provides information about the cash inflows and outflows of a nonprofit organization.
• By examining past performance and comparing it with industry standards, they can make better decisions regarding spending patterns and strategic initiatives.

Loans and notes payable, through banks or individuals, are also listed in the liability section of the Statement of Financial Position. Nonprofits use a system of accounting called The Key Benefits of Accounting Services for Nonprofit Organizations fund accounting to track sources of revenue that they can only use in specific ways. Fund accounting requires that organizations keep track of these funds and report them on their Statement of Financial Position. It details where your money is going—whether it’s for programs, administrative costs, or fundraising efforts.

• Whether you’re handling a simple 990-N or a detailed Form 990, Tax990 has the tools to support your mission—every step of the way.
• By comparing assets and liabilities over time, stakeholders can identify trends in financial growth or challenges, providing insight into the organization’s financial trajectory and resilience.
• LUNA includes the cash on hand figure plus additional resources, representing a slightly longer-term view than cash alone.
• This metric helps determine whether the nonprofit is balancing mission-driven spending with necessary operational support.
• A nonprofit profit and loss statement, also known as a statement of activities, outlines the organization’s revenues and expenses over a specific period.

Generally Accepted Accounting Principles (GAAP) for Nonprofits

For example, cash is already a liquid asset, so it’s listed first in the assets section. Investments in property and equipment, on the other hand, would need to be sold to become liquid, making it challenging to use them for operating expenses. Furthermore, WWF adds graphs that illustrate the nonprofit’s operating revenue and program spending growth over the past decade.