Statement of Activities: Guide to Reading This Key Nonprofit Report

The SOA outlines a company’s profits and expenditures over a period, while the Statement of Financial Position presents its financial position at a specific point in time. The image below is the SOA of a nonprofit organization in Washington, DC, called Freedom House (2015). The organization performs research and supports democracy, political freedom, and human rights. Initially founded in October 1941, the organization describes itself as a clear voice for freedom and democracy worldwide. To calculate Net Assets, you start by summing all sources of revenue, including donations, grants, investment income, service revenue, sales, special event income, and any other revenue streams. Expenses are the costs incurred by a nonprofit in carrying out its activities, including program delivery, administrative operations, and fundraising efforts.

Statement of Cash Flows: How Nonprofits Track Inflow and Outflow of Money

The following sections will delve into the specific components, explore best practices for its creation, and discuss how it can be utilized for strategic decision-making and improved financial oversight. Cash basis accounting refers to tracking the revenue of a nonprofit every time the nonprofit receives physical cash. Public Foundation, NGO, church, masjid/mosque are usually required to present this type of income statement as a format document.

How to Evolve Your Mission to Win More Grants

• The purpose of the nonprofit statement of activities is to provide details about transactions of the nonprofit entity how those transactions are providing for the organizations various programs and services.
• For instance, lumping all expenses under a generic “operations” category hides the actual costs of specific activities, such as programming versus fundraising.
• Restricted Revenue shows funds with donor-placed restrictions on how or when you can spend the money.
• Repeated annual deficits in the SOA will result in an accumulated deficit on the SOFP.
• Unlike for-profit entities, nonprofits must adhere to specific accounting standards that ensure transparency and accountability to donors, grantors, and regulatory bodies.
• Each year, nonprofit organizations are required to file Form 990 with the Internal Revenue Service (IRS).

If you don’t keep up with the latest rules for recognizing revenue, you may report your organization’s income wrong on your Statement of Activities. Often, this leads to large audit adjustments, budget vs actual reporting difficulties, and other funding challenges. This statement is crucial for demonstrating how effectively your nonprofit manages its resources.

Program Services Expenses

The net assets featured on your nonprofit statement of https://nyweekly.com/business/accounting-services-for-nonprofits-benefits-and-how-to-choose-the-right-provider/ activities are simply your expenses subtracted from your revenue. This calculation shows the equity of your nonprofit organization and whether you have the revenue to cover expenses, creating a sustainable organization. Finally, one of the categories often listed as revenue on your statement of activities is your net assets released from restriction.

• It is a dynamic tool that, beyond mere compliance, aids in strategic planning and internal management by providing a clear view of financial outcomes and operational effectiveness.
• If a building is shared by several programs, for example, the rent must be allocated using an objective method.
• Under the accrual basis of accounting, revenues are recorded at the time of delivering the service or the merchandise, even if cash is not received at the time of delivery.
• Reporting gains and losses within the statement of activities offers a comprehensive perspective on financial performance beyond routine operations.
• Well, revenue that is without donor restrictions refers to funds that the nonprofit can use freely for absolutely any purpose related to the organization’s mission.

Management and General Expenses

• This could lead to cuts in programs, staff, and other critical areas if not addressed.
• This way, your leadership team, board members, and other stakeholders can have a better understanding of how your nonprofit generates and spends its cash from year to year.
• No one wants to admit to making a mistake, so it’s better that you head off that possibility.
• Most nonprofits share these statements to be entirely transparent with their donors; often using these statements in their annual or impact reports.
• The higher the ratio, the better equipped you are to pay back all your liabilities.
• The nonprofit statement of activities is a vital financial report that provides a comprehensive view of an organization’s financial performance.

If you’re a voluntary health or welfare organization you also must present your expenses in a matrix, which includes both the natural and functional expenses by program, according to FASB Statement 117. Generally accepted accounting principles dictate that these two categories must be clearly delineated and recorded differently. The nonprofit should also make it clear that funds are only being spent per the wishes of the donor. To learn even more about nonprofit financial reporting basics, as well as other fund accounting tips, check out our Accounting Fundamentals Revisited webinar series. To put simply, the Statement of Activities is a cornerstone of financial transparency, helping nonprofits build and maintain trust with supporters and regulators. Nonprofits will Top Benefits of Accounting Services for Nonprofit Organizations You Should Know share this information with the IRS, but they may also share this report on their website and annual report to inform donors about the use of funds.

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It allows you to remain transparent about your resource allocations to stakeholders and report expenses on your Form 990. Commercially available accounting software offers adjustable templates that you can tailor to the revenue or expense categories that are most relevant to your operation. The difference between total revenue and total expenses is known as the change in net assets. A clear breakdown of expenses also helps demonstrate your organization’s efficiency and commitment to mission-driven activities. For example, nonprofits record incoming funds only after meeting donor conditions, while for-profit companies can recognize revenue as soon as a sale is complete.

If you’re on budget or have a surplus, it will show potential donors that you’re a responsible organization. However, if you’re facing financial challenges, such as overspending, you may need to take a look at your expenses and see where you can cut back or look for other opportunities to get funding. Creating a nonprofit budget template can be a valuable tool to organize your financial data, plan for future expenses, and ensure fiscal responsibility within your organization. Expense classification and allocation in nonprofit organizations is a meticulous process that ensures resources are used effectively and transparently.

What Are Nonprofit Financial Statements?

Your goal is to try and automate as much as you can of revenue tracking, expensive categorization, and report generation, so that you can produce more consistent statements. For example, if total revenues for the fiscal year are $2,200,000 and total expenses are $1,850,000, you subtract the expenses from the revenue to determine the net assets. The expenses your organization incurs should all support your mission in some way, whether that’s by funding daily nonprofit operations or a specific project relevant to your mission’s purpose. Meanwhile, unrestricted revenue can be allocated toward projects, operations, and other expenses as chosen by the nonprofit itself. Fees from rendering services, donor restricted contributions, gains & losses on investments, member dues, program fees and fundraising events. Revenues should be reported on a gross basis, but investments can be reported on a net basis.

The items that cause the changes in Net Assets are reported on the nonprofit’s statement of activities (to be discussed later). A second issue is whether a donor’s contribution to a nonprofit organization will qualify as a charitable deduction on the donor’s income tax return. While businesses are organized to generate profits, nonprofits are organized to address needs in society. As a result, nonprofits will issue a statement of activities instead of the income statement issued by for-profit businesses.