Statement of Activities: Reading a Nonprofit Income Statement

The Statement of Activities is a fundamental tool in this process, serving as a comprehensive report that provides a snapshot of the organization’s financial activities over a specific period. A SOA is essential for the financial operations of a nonprofit organization, much like an income statement. Understanding and effectively utilizing the Statement of Activities is crucial for nonprofit organizations to achieve financial stability and fulfill their mission. No, the Statement of Activities is one of several essential financial statements for nonprofits. For effective accounting period review, allocate revenues and expenses in separate columns to accurately assess the financial performance of each program or service. The Statement of Activities tracks your nonprofit’s income and expenses, showing financial performance over time.

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Determining how much surplus you have is essential for gaining insight into what your options are for adding resources into programs or fundraising. These should also be compared to revenue – if high amounts of money are being put into fundraising, with minimal returns, a different strategy may be in order. However, they also serve an incredibly important function within the nonprofit itself. Finally, information is provided about the organization’s overall financial position at the beginning of the year and at the end of the year.

I hope these analogies give you a clearer distinction between those two reports and help you better understand your organization’s financials in the future. The next basic financial report in every nonprofit is the Statement of Activities. The nonprofit Statement of Functional Expenses details the nature and function of your expenses, allowing you to be transparent with stakeholders about resource use and easily report expenses on your Form 990. These documents summarize your nonprofit’s financial activities and health, offering benefits like enhanced decision-making, informed strategic planning, better risk management, and increased transparency and accountability. By recognizing and addressing common mistakes, your nonprofit can safeguard its financial integrity, foster stakeholder trust, and, ultimately, enhance your capacity to fulfill your missions. Ongoing training in nonprofit accounting principles is indispensable for financial personnel.

• While very similar to an income statement, the balance sheet shows financial activities over a shorter period of time.
• Understanding how to read and interpret the Statement of Activities empowers stakeholders to make informed decisions regarding their involvement or investment in a nonprofit.
• Accounting software programs like QuickBooks or Sage Intacct can make gathering, organizing, and presenting information a much more straightforward process.
• The nonprofit statement of activities and the income statement are two different terms that refer to the same report.
• A balance sheet is a term commonly known in profit businesses.
• The first type is a purpose restriction, which dictates that the contribution must be used for a specific program or activity.

Net assets represent the residual value of a nonprofit’s assets after deducting its liabilities. Transparency in expense reporting builds trust and strengthens accountability, fostering confidence among donors, funders, and the broader community. Analyzing the relationship between revenue and expenses within each category offers valuable insights.

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It allows you to see how the organization uses its funding to advance the mission and allocate resources. 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 statement of activities is prepared using the trial balance the NFP compiled after it has processed all year-end adjustments and verified the accuracy of account statement of activities nonprofit balances.

• The Statement of Activities is an essential financial document for any nonprofit organization.
• The statement of financial activities is a document that lists a nonprofit organization’s income and expenses for a given reporting period.
• A graduate of Boston College and a Certified Public Accountant, Jennifer joined YPTC in 2003 following a career in public accounting with Arthur Andersen and serving as Director of Finance and CFO for several companies.
• 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.
• You’re required by FASB 117 to report your expenses by functional classification, meaning you’ll need to at least split up your expenses by administrative, fundraising, and program costs.
• While a for-profit company may also use this information to make critical decisions about the future, their focus is more geared toward generating income rather than advancing a mission.

Statement of Financial Position: A Look at the “Balance Sheet” for Nonprofits

While the goal of a nonprofit isn’t to turn a profit, if you don’t bring in more than you spend, you won’t be able to survive. It includes donations, grants, fundraising, earned revenue, government funding, and special events. The Statement of Activities further breaks down your revenue and expenses according to any restrictions limiting how or when you may use them. With the right tools you can easily draft documents like the statement of activities to professional standards.

In some cases, the Statement of Activities may also be referred to as the “income statement” or “statement of revenues and expenses,” though “Statement of Activities” is the most common term among nonprofits. The nonprofit statement of activities separates revenue with and without restrictions so that organizations can see the flexibility in their funding in addition to the sheer amount of it. One of these central reports run by nonprofit accountants is the statement of activities, sometimes known as an income statement. While for-profits focus on making as much income as possible to make more money for themselves, nonprofit organizations focus instead on how they can raise additional revenue to further their missions. It provides a comprehensive overview of the organization’s financial activities over a specific period, detailing revenues, expenses, and changes in net assets. A Statement of Activities is similar to a for-profit income statement and is one of the four financial reports nonprofits must file.

Revenue With Restrictions vs. Unrestricted Revenue

It enables regular financial check-ins, with your board reviewing the statement to ensure ongoing financial health. As a nonprofit professional she has specialized in fundraising, marketing, event planning, volunteer management, and board development. Kristine Ensor is a freelance writer with over a decade of experience working with local and international nonprofits.

This change in net assets provides a clear measure of the organization’s financial health and operational success over the reporting cycle. The Statement of Activities is the core financial document that chronicles a non-profit organization’s performance over a specific fiscal period. In its simplest form, a statement of activities records everything your nonprofit earns and spends over a period of time, often a month, quarter, or fiscal year.

All of the vital accounting statements that you pull together to draw conclusions from are pulled from your nonprofit chart of accounts. While your statement of activities shows the sustainability of your nonprofit, your statement of cash flows shows how money moves in and out of your organization. No matter what option you choose, you need to gather all your financial information before you can create a nonprofit statement of activities. Many nonprofits are required to submit their statement of activities to the IRS, and some nonprofits choose to make their statement of activities available to the public on their website. 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. 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.

You must share this at the beginning of the year and the end of your financial period. Net assets are your total revenue minus your total expenses. 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.

Simply, it reports your organization’s revenue and expenses during a specific period and the difference between them. Instead, it acts like a snapshot, providing a clear and concise picture of a nonprofit’s financial health during a specific time frame—typically the organization’s fiscal year. The reporting period typically aligns with the organization’s fiscal year, though quarterly statements are also prepared for internal and board review. As a key financial report for nonprofits, it provides a clear overview of your organization’s financial performance and accountability. 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.

Your nonprofit’s statement of financial position, or balance sheet, provides a summary of your organization’s financial health at a specific point in time. A nonprofit statement of activities is a financial statement that shows the  income and expenses of your nonprofit over a period of time. The statement of activities is also one of several core nonprofit financial statements that together offer a comprehensive view of your organization’s financial health. The purpose of the nonprofit statement of activities is to provide detailed information about the organization’s transactions and how those activities help further the organization’s mission through various initiatives and programs. The nonprofit Statement of Activities (or income statement) details your revenues and expenses during a specific period. For nonprofit organizations, the financial report that meets the requirements for an income statement is called the Statement of Activities.

Each report comes with a note from the independent auditor stating that they conducted the audit according to the Generally Accepted Auditing Standards (GAAS) to ensure that each document is free from any misstatement. 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. For instance, you might decide to focus on marketing matching gifts to generate the revenue you need to expand one of your core programs.