How to Read a Nonprofit Statement of Activities

By exploring how to create your own, you’ll be able to manage your financials easily and stay focused on your daily operations. Separating each stream by source also clarifies whether different donor conditions are applicable (e.g. unrestricted, temporarily restricted, or permanently restricted). If that’s the case, your stakeholders (donors, grantors and regulators) will appreciate being able to see how each of those sources contributes to the mission. By contrast, for-profit organizations can often categorize expenses in broad buckets like Sales, General and Administrative (SG&A), and Cost of Goods Sold (COGS) across several product lines. Although there are similarities in profit-and-loss elements, nonprofits must follow different rules and reporting structures. In this article, we’ll elaborate on the purpose of the statement of activities, describe how it’s structured, and explain why it’s so important for transparency and planning.

Report: Success Rates for Different Types of Grants

The purpose of the change in net assets is to articulate the net assets or equity of the statement of financial position. You should review your statement of activities monthly to identify trends and changes. If your organization has deficits in specific periods, those deficits should be offset by surpluses in other periods.

• Training your accounting teams on the importance of granularity in financial reporting and the use of resources like the UCOA can significantly improve your financial management practices.
• Temporarily restricted revenue, on the other hand, comes with specific restrictions imposed by donors.
• Whether you know it or not, the Statement of Activities is the unsung hero in the financial story of your nonprofit.
• These expenses include salaries and benefits for program staff, program materials and supplies, and any other costs incurred in delivering the organization’s services to its beneficiaries.
• Most in-kind donations will come from companies providing products for an event, silent auctions, and raffles.
• The nonprofit statement of activities is a crucial document for any nonprofit organization.

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It summarizes your revenues and expenses for a specific period and allows both your organization and stakeholders to understand how you’re managing your resources. However, as you know a nonprofit is not like accounting services for nonprofit organizations any other business, so it is no surprise that nonprofit financial reports are different. For nonprofit organizations, the financial report that meets the requirements for an income statement is called the Statement of Activities. Improved management of resources can help your nonprofit organization to achieve its goals more efficiently and effectively. By understanding how to read and understand this key nonprofit financial report, you can better allocate your resources and improve your organization’s overall performance. Donations and grants play a crucial role in the financial sustainability of nonprofit organizations.

Best Practices for Mastering Nonprofit Financial Statements

Permanently restricted revenue consists of funds that are https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ subject to permanent restrictions. These funds must be used for specific purposes in perpetuity and are often received through endowments or bequests. If the net income is positive, that means the organization is making more money than it’s spending. It means the organization is doing well and is able to continue its operations. But also, things like programmatic expenses, or the cost of holding events should be included.

• As an example, associations require participants to pay certain charges in order to get the benefits provided through the organization.
• Since nonprofits operate with the intention of using all profit to fuel their mission, the change in net assets is typically much smaller when compared with a for-profit entity.
• This could lead to cuts in programs, staff, and other critical areas if not addressed.
• This report also shares how things can be improved by increasing revenue and decreasing costs.
• A SOA is essential for the financial operations of a nonprofit organization, much like an income statement.
• The financing section is a report of any funds that have been borrowed and any loan amounts that have been paid back.
• This information is crucial for assessing the nonprofit’s financial sustainability and its ability to continue fulfilling its mission in the long term.

Financial transparency and proper financial management are essential in running a nonprofit organization. As a nonprofit executive or financial officer, understanding nonprofit financial statements is key to making informed decisions and ensuring your organization remains sustainable and compliant. A nonprofit statement of activities provides a comprehensive overview of an organization’s financial performance over a specific period.

In order to stay compliant with governing agencies, nonprofit leaders should frequently review the statement of activities to ensure that resources are being properly allocated. A well-prepared statement of activities provides a transparent overview of a nonprofit’s financial performance. Accurate data, clear categorization, and consistent reporting periods are essential for providing valuable insights to stakeholders and supporting effective decision-making.

• A nonprofit statement of activities example will have a heading, body, and bottom line.
• The changes in net assets section of the Statement of Activities gives stakeholders a clear picture of the organization’s financial health.
• It reflects the difference between revenues and expenses over a specific period.
• By fostering transparency and collaboration, you’ll enhance the decision-making process and the financial health of the organization.
• It allows stakeholders to assess whether the organization is on a solid financial footing and aligned effectively with its stated mission and goals.