Statement of Activities: Reading a Nonprofit Income Statement

A Statement of Activities shows whether an organization made a profit or a loss during a period of time. It is a financial snapshot that can be used to track the organization’s financial progress. Sharing these 3 sections with donors provides transparency and helps them understand where their donation goes. Websites like GuideStar also look at these reports when choosing which nonprofit to award their platinum and gold seals of approval.

• FASB Statement 117 allows most nonprofits to present their functional expenses in the notes of their financial statements, but these expenses may also be presented on the face of the statement.
• Then, you can reference your statement of activities to make more accurate predictions when you develop a new operating budget for the coming year.
• But by sharing so much information, they are exceptionally transparent and strengthen relationships with their supporter base.
• As a nonprofit professional she has specialized in fundraising, marketing, event planning, volunteer management, and board development.

The nonprofit statement of activities (or income statement) is a financial report that shows your organization’s revenue and expenses over time, ultimately allowing your organization to analyze your net assets. The Statement of Activities (SOA) is the correct nonprofit term for the report we may commonly have called the income statement, budget report, profit & loss, income and expense report, etc. The SOA report shows a nonprofit organization’s income, expenses, and net income for a specific period of time, all or part of a fiscal year. The report reflects the changes to an organization’s net assets resulting from financial activities that occurred during the fiscal year. The cherry on top is that an accurate income statement can help your organization complete your annual tax return.

You’ll need to record information about your organization’s expenses and revenue on your tax forms. Between your statement of activities and statement of functional expenses, you’ll be all set to file your Form 990 accurately each and every year. The nonprofit statement of credere definition and meaning financial position is also known as a balance sheet, which is what for-profit organizations usually call their equivalent statement. It provides a snapshot of your organization’s financial health, meaning it plays an especially important role in nonprofit financial audits.

Understanding a Nonprofit Statement of Activities

As a nonprofit professional she has specialized in fundraising, marketing, event planning, volunteer management, and board development. Any other donations that do not come with a designation can be termed unrestricted funds. You must share this at the beginning of the year and the end of your financial period. Unrestricted funds can be used where your nonprofit needs them most.

• Because all of the information that goes into the four major nonprofit financial statements should already be stored in your accounting software, there are two main ways to compile these reports.
• Between your statement of activities and statement of functional expenses, you’ll be all set to file your Form 990 accurately each and every year.
• Nonprofits and associations use Statement of Activities Reports to give executives and department heads an easy to read monthly financial review.
• But when you mail a fundraising appeal to your donor list, postage suddenly becomes a fundraising expense instead.
• In other words, it shows what you own, what you owe, and what your organization is worth financially.

Nonprofits have essentially parallel reports, but because their accounting is different, the reports differ slightly as well. We typically break revenue into two categories; contributed and earned. Kristine Ensor is a freelance writer with over a decade of experience working with local and international nonprofits.

Temporarily restricted funds that must be held for a short period will be unrestricted eventually, but they must be listed under restricted funds until then. Most nonprofits also apply for government, companies, or foundation grant funding. These gifts must be posted separately from cash and in-kind contributions. The most significant source of revenue for most nonprofits is contributions received.

Categories

Nonprofits must include natural and functional classifications for all expenses. Organizations will separate these expenses by programs, fundraising, and management. With each of these, nonprofits include salaries, events, administrative costs, etc. The summary level includes all of the nonprofit’s income and expenses. Yes, the Statement of Activities can provide valuable insights for budgeting. By examining your previous financial performance, you can identify trends, assess the effectiveness of revenue sources, and make informed projections for future periods.

What is restricted revenue?

When asking for donations or funds, nonprofits are required to ask donors if they would like their donations to be restricted or unrestricted funds. The first category to appear on this financial report is revenues, or how much money the organization is collecting. One of the most challenging aspects of tracking the financial health of a nonprofit organization is properly recording diverse sources of income. The two main types of nonprofit revenue are contributed revenue and earned revenue.

What Is A Statement of Activities for Nonprofits?

It is prepared instead of the income statement issued by a for-profit business. Your nonprofit statement of activities is split into several different sections. Meanwhile, horizontally, it’s split into your organization’s unrestricted and restricted revenue. 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.

Practical Strategies for Funding Your Nonprofit’s Operating Reserves

Identify trends and changes in sources of revenue, expenses, and changes to net assets. If you use cash-based accounting, you’ll only record cash deposited into your bank during the reporting period. The Statement of Activities further breaks down your revenue and expenses according to any restrictions limiting how or when you may use them.

The statement of cash flow shows how cash moves in and out of a nonprofit. Board members and other leaders can use this statement for better insight into how much is available to pay expenses. The idea is to give an overall picture of the nonprofit at a specific time. Nonprofits must file four statements every year to comply with IRS rules. Most nonprofits use these statements in their annual or impact reports. Your nonprofit works to accomplish its mission, and when it comes to communicating that to donors and external stakeholders, no document is as helpful as a statement of activities.

Finally, financing revenue comes from the earnings and interest earned on your financial activities and savings. Operating revenue includes funds from donations, ticket sales, product sales, etc. Operating expenses are your employees’ salaries and the amount spent on equipment and supplies. Financial statements also give donors a better understanding of how the organization is doing. Nonprofits typically prepare their final Statement of Activities annually as part of their audit or review and make it publicly available. However, organizations should generate it internally more often, such as monthly or quarterly, to monitor financial performance more closely.

To make this process easier, we recommend that your organization partner with a nonprofit accountant like the experts at Jitasa. Our team will meet you where you are in compiling your statement of activities, analyze your financial data, and make tailored recommendations to improve your revenue and expense allocation going forward. Nonprofits must compile an income statement every year to be in accordance with the Generally Accepted Accounting Principles (GAAP). The statement of activities can be incredibly helpful when your nonprofit is analyzing its finances and trying to determine where those hard-earned fundraising dollars go. Your organization works hard to raise funds and to use those funds to further your mission.