Losses, on the other hand, represent decreases in net assets due to activities not directly related to the nonprofit’s core operations. With a clear calendar, nonprofits can manage their workflow more effectively, reduce last-minute pressures, and ensure that financial statements are ready for timely review and submission. The operating reserve ratio measures how long a nonprofit can continue its operations without additional revenue. This metric provides insight into the organization’s financial stability and preparedness for unexpected expenses or revenue drops. Financial statement notes play an essential role in enhancing transparency, as they give stakeholders a deeper understanding of the nonprofit’s financial situation beyond raw numbers.

• The budget vs. actual report helps you to easily compare what happened in your business to what you expected to happen.
• Keeping clear and accurate financial statements is like making sure the lights are on in a nonprofit organization.
• Impressive numbers are good to show donors, but what counts is drawing meaningful insights from that data.
• By dividing expenses into distinct categories, nonprofits can demonstrate their commitment to using donor contributions responsibly and efficiently.
• Because staffing is a common issue for nonprofits, and many don’t have in-house accountants, outsourcing the task can streamline the process and ensure your financial statements are accurate.
• Most in-kind donations will come from companies providing products for an event, silent auctions, and raffles.

How To Read Nonprofit Financial Statements

After that time elapses, they can be released from restriction and used as the nonprofit sees fit. 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. Each of these four statements—including the statement of activities—summarizes your organization’s data differently, providing unique, applicable insight you can use to improve your financial management strategy. As you can see, the report is divided into the revenue and expenses along the vertical axis.

Nonprofit Financial Statements Explained

Donations can come from individuals, corporations, or other entities, often driven by the desire to support the organization’s mission. These donations may be one-time gifts or recurring contributions, and they can vary in amount from a few dollars to significant sums. Grants, on the other hand, are typically funds provided by foundations, government agencies, or other institutions for specific purposes or projects. While grants can bring in considerable amounts, they often come with strings attached, requiring the nonprofit to meet certain criteria or report on how the funds are used.

How to Read Nonprofit Financial Statements

By keeping these explanations straightforward, donors can see how effectively you’re using their contributions. If expenses have risen, explain the reasons and how they align with your mission and plans. Impressive numbers are good to show donors, but what counts is drawing meaningful insights from that data. It also covers https://greatercollinwood.org/main-benefits-of-accounting-services-for-nonprofit-organizations/ loans made to or received from others and any cash involved in mergers or acquisitions. By hosting virtual events, you’re able to cut down on expensive venues and catering while still bringing in funds.

Basic Nonprofit Financial Statement

You can use this data to assess how your nonprofit is achieving its mission-driven goals and what adjustments, if any, need to be made. Non-profit accounting software can be a valuable tool for managing and generating important financial statements for nonprofits. 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 5 Main Benefits of Accounting Services for Nonprofit Organizations must compile an income statement every year to be in accordance with the Generally Accepted Accounting Principles (GAAP).

• This also makes it easier for you to mark anything needed on the paper easily, unlike the one on your electronic devices.
• The FASB Accounting Standards Codification Topic 958 requires important additional disclosures regarding liquidity, restrictions, etc. for creditors, donors, and others.
• The main purpose of this statement is to help you file your annual taxes with the IRS.
• It details where your money is going—whether it’s for programs, administrative costs, or fundraising efforts.
• These dues are fees that members pay, either annually or on another regular basis, in exchange for benefits, services, or simply to support the organization’s work.

The scholarship foundation’s details fit well with what donors expect to hear from the organization. The Statement of Activities further breaks down your revenue and expenses according to any restrictions limiting how or when you may use them. Liabilities also include amounts received in advance for a future sale or for a future service to be performed. Budgeting is also complicated when sources of support are not secured at the time the budget is prepared for the upcoming year.

You now know what nonprofit financial statements are, and why they’re so brilliant (and necessary) to have. So, let’s talk about the four reports that’ll help you keep track of your nonprofit’s finances. Your nonprofit’s financial statements are only as accurate as the financial data you input.