Nonprofits have unique financial reporting requirements to ensure transparency and accountability to donors, stakeholders, and regulatory bodies. Four key financial statements help provide a comprehensive view of your organization's financial health:
Statement of Financial Position (Balance Sheet)
Statement of Activities (Income Statement)
Statement of Cash Flows
Statement of Functional Expenses
Let’s break each of these down:
Statement of Financial Position (Balance Sheet)
Also known as the Balance Sheet, the Statement of Financial Position provides a snapshot of your nonprofit's financial standing at a particular point in time. It’s broken into three main categories:
Assets: What your nonprofit owns, such as cash, receivables, investments, and physical property.
Liabilities: What your nonprofit owes, including accounts payable, loans, and other financial obligations.
Net Assets: The difference between your assets and liabilities. This reflects the overall value of your nonprofit, often divided into unrestricted (general use funds) and restricted (funds designated for specific programs or purposes).
This statement helps you assess the organization’s liquidity and financial stability.
Statement of Activities (Income Statement)
The Statement of Activities, similar to a Profit and Loss Statement, tracks your nonprofit’s revenue and expenses over a specific period of time. It shows whether your organization had a surplus (revenue exceeding expenses) or a deficit (expenses exceeding revenue).
Key components include:
Revenue: Donations, grants, program fees, and other income sources.
Expenses: Costs related to programs, fundraising, and general administration.
Net Assets: The increase or decrease in net assets after revenue and expenses are accounted for.
This statement helps you evaluate financial performance, showing how well your nonprofit managed resources in support of its mission.
Statement of Cash Flows
The Statement of Cash Flows details how cash moves in and out of your organization over a specific period. It’s divided into three main sections:
Operating Activities: Cash generated or used in day-to-day operations, such as payments for programs and administrative expenses.
Investing Activities: Cash flow related to the purchase or sale of long-term assets, such as equipment or property.
Financing Activities: Cash received or paid out for loans, grants with restrictions, or other funding mechanisms.
This statement helps you monitor your nonprofit’s liquidity and cash reserves, ensuring you have enough funds to cover short-term obligations and sustain operations.
Statement of Functional Expenses
The Statement of Functional Expenses breaks down your expenses by function and nature, providing more transparency on how funds are allocated. Expenses are categorized into three main functions:
Program Services: Costs directly related to carrying out your nonprofit's mission and programs.
Management and General: Administrative costs, such as office expenses and salaries for staff who support overall operations.
Fundraising: Expenses related to generating donations and other income.
In addition, the nature of the expenses (such as salaries, rent, and supplies) is also detailed, offering further insight into how resources are utilized. This level of detail is crucial for nonprofit accountability and can help build trust with donors by showing how funds are spent.
Download Our Free Bookkeeping Templates
To make bookkeeping easier, we offer free, downloadable templates for these financial statements, designed specifically for nonprofits. Use them to streamline your financial reporting and ensure compliance with accounting standards.