Loans and notes payable, through banks or individuals, are also listed in the liability section of the Statement of Financial Position. 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. And a little “profit” helps build your operating reserves to help you survive a slow-fundraising quarter or unexpected expenses. It details where your money is going—whether it’s for programs, administrative costs, or fundraising efforts.

Understanding Nonprofit Financial Statements

These statements are crucial for transparency and accountability, as they allow stakeholders to assess the organization’s financial stability and make informed decisions. For nonprofits, audited financial statements demonstrate proper management of donor and grantmaker contributions. Regardless of the sector, audited financial statements play a vital role in fostering trust, enhancing financial management, and supporting informed decision-making. The nonprofit statement of cash flows provides valuable insights into how the organization manages its cash resources and how it aligns its financial activities with its mission-related objectives. It helps stakeholders assess the organization’s ability to meet its short-term obligations, invest in long-term goals, and maintain financial stability. This statement will detail the expenses incurred during the reporting period and allocate it by program services and support services.

What are the Components of Notes to Financial Statements for Nonprofits?

• Secondly, it must provide the necessary funding to support your mission in the present and the future.
• They include statements such as the balance sheet, income statement, and cash flow statement to track assets, liabilities, revenues, and expenses.
• The outcome is real-time data to inform strong decision-making that best serves the mission.
• Both nonprofits and for-profits generate financial statements, but they have different names and details.
• Additionally, the section of additional disclosures may include information about related party transactions, contingent liabilities, and other relevant matters.
• Donors can restrict contributions to a designated purpose or period of time (multi-year support or in perpetuity, for example).
• By using gross receipts to record revenue and detailing cash inflows and outflows, including payments on long-term investments like buildings, nonprofits can offer a clear picture of their financial activities.

They represent the costs incurred by the organization in carrying out its activities and fulfilling its mission. It is essential for nonprofits to track and categorize their expenses accurately to ensure transparency and accountability. In addition to unrestricted net assets, nonprofit organizations may also have restricted net assets. Restricted net assets are funds that are designated for specific purposes by donors or other external parties. These funds are subject to restrictions and can only be used for the specified purposes. It is important for nonprofits to track and report on both unrestricted and restricted net assets to ensure transparency and accountability.

What is the Statement of Activities?

You should consider our materials to be an introduction to selected accounting and bookkeeping topics (with complexities likely omitted). We focus on financial statement reporting and do not discuss how that differs from income tax reporting. Therefore, you should always consult with accounting and tax professionals for assistance with your specific circumstances. The items that cause the changes in Net Assets are reported on the nonprofit’s statement of activities (to be discussed later).

What are the key components of nonprofit audited financial statements?

This rigorous review process, whether internal or external, is crucial for building trust among donors, grantors, and other stakeholders. The statement of cash flows (SCF) for a nonprofit organization is similar to that of a for-profit business. The SCF reports the organization’s change in its cash and cash equivalents during the accounting period. But, since auditable nonprofit financial statements, we’ll talk about accrual accounting practices in this article. That means your revenue will also include any donations pledged in the period (whether you collected the cash or not) and any receivables (for services rendered but not yet paid). Understanding nonprofit financial statements is crucial for board members transitioning from the corporate world.

Unlock the secret to creating successful nonprofit financial statements

As a nonprofit, some of your grants and donations may come with donor restrictions. For example, a donor may give your nonprofit $50,000 under the condition that those funds can only be spent on one specific program. You cannot spend that money on anything else, even if your rent is past due or another program needs the funding more.

Understanding Liabilities in Nonprofit Financial Statements

Let’s explore how these pieces, like the statement of activities, balance sheet, statement of functional expenses, and statement of cash flow, fit together to help nonprofits make informed decisions. They show how much fuel (or financial resources) the nonprofit has to keep running its programs. Net assets are divided into without donor restrictions (free to use for any purpose) and with restrictions (must be used as the donor wishes). Watching how these net accounting services for nonprofit organizations assets change over time helps organizations and their supporters see how well the nonprofit is managing its resources and investing in activities that support its mission. This insight is crucial for maintaining and improving the organization’s financial health.

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It is important for nonprofits to https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ accurately record and report their revenue and support to maintain transparency and accountability. By doing so, they can demonstrate their financial stability and attract potential donors and funders. To present the net assets section in a structured manner, a table can be used to summarize the different categories of net assets, such as unrestricted, temporarily restricted, and permanently restricted.