Nonprofits have essentially parallel reports, but because their accounting is different, the reports differ slightly as well. Nonprofits are recommended to have general liability (premise), commercial automobile (non-owned/hired), and directors and officers (D&O) liability coverages. If the net income is positive, that means the organization is making more money than it’s spending.
In this guide, we’ll explain what a nonprofit statement of activities is, why it’s important, and how to create one for your organization. A statement of activities quantifies the revenues and expenses of a nonprofit entity for a reporting period. This is the nonprofit version of the income statement that is used to report the financial results of a for-profit business. The nonprofit statement of activities is one of the core accounting documents that your organization creates.
When you examine your nonprofit statement of activities, it should be clear that the line items in the statement match up with those in your organization’s budget. This allows your organization to make sure you’re on track with your budgeted regular expenses. 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. As you can see, the report is divided into the revenue and expenses along the vertical axis. Horizontally, the revenue and expenses are further categorized by restrictions placed on the funds.
Components of the Statement of Activities
It allows you to see how your organization uses its funding to advance its mission and allocate resources. In addition, your income statement can be used to determine how sustainable your organization’s finances are so you can make informed decisions for the future. 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.
This guide will explain what a Statement of Activities is and the key components in it. There are a few different ways that you can create a nonprofit statement of activities. You can hire an accountant to do it for you, use accounting software, or do it yourself. The program level goes into more detail and breaks down the income and expenses by program.
- Nonprofits must compile an income statement every year to be in accordance with the Generally Accepted Accounting Principles (GAAP).
- Generally, nonprofits try to limit their operating expenses as much as possible to lower their overhead.
- Repeated annual deficits in the SOA will result in an accumulated deficit on the SOFP.
- Reading a Statement of Activities can be helpful for understanding a nonprofit’s overall financial picture.
- This statement can be used to track your progress and make sure that your nonprofit is staying on budget.
Think of it as a financial photo, showing your assets, debts, and overall net worth. The revenues and expenses in this report are broken down by unrestricted funds and funds with restrictions placed on them by donors, using separate columns across the statement. Though it is possible to compress these rows down to just a few line items, it is customary to be more expansive in detailing revenues and expenses. The first thing you’ll want to look at when reading a nonprofit statement of activities is the net income. This will give you an idea of whether or not the organization is bringing in more money than it’s spending. The summary level includes all of the nonprofit’s income and expenses.
You’re required by FASB 117 to current portion of long term debt cpltd report your expenses by functional classification, meaning you’ll need to at least split up your expenses by administrative, fundraising, and program costs. Nonprofits receive revenue from a number of different sources, all of which are essential to helping the organization pursue its mission. The majority of this revenue will be recorded as gross in your statement of activities. For-profit accounting departments have a standard set of reports and statements they run to analyze their finances.
Your nonprofit statement of activities is split into several different sections. Meanwhile, horizontally, it’s split into your organization’s unrestricted and restricted revenue. By analyzing your nonprofit’s statement of activities, your organization can determine if the expenditures currently allocated for each of your programs are sustainable for the long run. You can use the information in this statement to better understand if now is the right time to cut expenses, provide membership discounts, or secure additional funding through grants or sponsorships.
Statement of Activities Line Items
Grant income comes from funds given by government agencies, foundations, other nonprofits, or grant-making entities. Grants and federal funding usually have rules on how you can use the money. This section details the fundraising, donations, grants, program service fees, membership dues, and investment income. By categorizing revenue types, you can easily gain insights into the different funding sources. In this article, we’re going to break down the Statement of Activities and explain how to create one for your nonprofit. By the end, you’ll have a clear understanding of how it can help you manage your nonprofit’s finances better.
Revenue includes cash inflow such as donations, grants, membership dues, and income from services or products offered by your nonprofit. Expenses, representing the cost of goods sold and operating expenses, are the costs your nonprofit incurs during its business operations, including program delivery and fundraising activities. Financial activities result in either a surplus (increase) or shortfall/deficit (decrease) in the organization’s net assets shown on the Statement of Financial Position (SOFP). Net results are classified as either with or without donor restrictions per FASB (the Financial Accounting Standards Board). The result of each year’s financial activity is shown as the “change in net assets,” that is, increases or decreases to the related net assets categories. The relationship of the SOA to the SOFP is shown in the illustration below.
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Sometimes, revenue earned by nonprofit organizations has restrictions placed on it by the revenue source. For example, granting organizations may require the funds provided to be dedicated toward a specific service or purpose. The only difference between these terms is that “income statement” is more commonly used by for-profit organizations, while “statement of activities” is more popular among nonprofits. Many nonprofits find that the word “activities” better reflects their focus on mission-driven work and the fact that they bring in revenue from a variety of sources—not just earned income. All of a nonprofit’s funds should be reinvested into the organization and its mission. Out of the four most common financial statements in a nonprofit, the Statement of Activities, also known as the Profit & Loss (P&L), is the broadest.
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If your nonprofit operates multiple programs or projects, it is important to allocate your expenses and revenues accordingly. For effective accounting period review, allocate revenues and expenses in separate columns to accurately assess the financial performance of each program or service. This allows you to track and assess the financial performance of each initiative separately. The Statement of Activities tracks your nonprofit’s income and expenses, showing financial performance over time. The Statement of Financial Position, or Balance Sheet, shows what your nonprofit owns and owes at a specific moment.
The Statement of Activities shows where your income comes from and how you spend that income. It enables regular financial check-ins, with your board reviewing the statement to ensure ongoing financial health. Contact Jitasa’s team of nonprofit accountants to compile your statement of activities. To help you grasp the concept, let’s consider a hypothetical nonprofit organization. Here’s an example of what their Statement of Activities might look like. Expenses represent the costs incurred by your nonprofit in carrying out its activities and operations.
What is the nonprofit statement of activities?
It is a financial snapshot that can be used to track the organization’s financial progress. The surplus or deficit in the Statement of Activities shows if your nonprofit made or lost money over a certain time. A surplus means you earned more than you spent, increasing your net assets. A deficit means you spent more than you earned, reducing your net assets.
Tyler’s extensive background in accounting, tax, and financial consulting set the foundation for Velu’s outsourced accounting solutions for nonprofits and small businesses. As a fractional CFO, transactions he goes beyond routine duties, guiding organizations with strategic insights for sound financial decisions. Velu’s services address the unique challenges faced by nonprofits and small businesses, fostering sustainable growth.
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