Statement of Activities: Reading a Nonprofit Income Statement

Nonprofits may receive donations that donors, corporations, or foundations wish to use on specific programs or expenses. Nonprofits must follow all donor requests, and these donations must be listed under restricted funds on a Statement of Activities. Save the Children adds these financial statements and a letter from the independent auditor when providing financial reports.

Encouragement to Utilize This Knowledge to Make Informed Decisions About Involvement or Investment in a Nonprofit

• For instance, lumping all expenses under a generic “operations” category hides the actual costs of specific activities, such as programming versus fundraising.
• Functional areas of the organization often include programs, fundraising, and management.
• Nonprofits must comply with the IRS and file four financial statements to ensure they follow strict nonprofit regulations.
• This statement records all revenues, gains, expenses, and losses, reflecting the changes in net assets as a result of operational activities.

The SOA report shows a nonprofit organization’s income, expenses, and net income for a specific period of time, all or part of a fiscal year. The report reflects the changes to an organization’s net assets resulting from financial activities that occurred during the fiscal year. The primary financial statements of for-profit businesses include the balance sheet, income statement, statement of cash flow, and statement of changes in equity. Nonprofit entities use a similar set of financial statements, though they have different names and communicate slightly different information. The nonprofit statement of activities (or income statement) is a financial report that shows your organization’s revenue and expenses over time, ultimately allowing your organization to analyze your net assets.

• A statement of shareholders’ equity shows how much the company has left when its liabilities are paid.
• The statement of activities is one of the main financial statements issued by a nonprofit organization.
• As a result, it can provide a more accurate statement about when financial changes occurred, and a more accurate nonprofit balance sheet.
• That means your revenue will also include any donations pledged in the period (whether you collected the cash or not) and any receivables (for services rendered but not yet paid).
• To continue fulfilling your essential role in the community, you must meet IRS reporting requirements, build donor trust, and make informed decisions that contribute to your overall financial sustainability.
• In contrast, an income statement for for-profit businesses emphasizes profitability.
• Statement of Activities is part of your nonprofit’s accounting requirements and is often included in its annual report or audited financial report.

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How to Prepare Your Nonprofit Financial Reports

This will give you an idea of whether or not the organization is bringing in more money than it’s spending. As part of the online MBA program at Yeshiva University, you will explore the analysis of businesses in depth. Our faculty of business leaders not only explain financial statements, they share their expertise and experience in the industry with students. The online program allows you to advance your career and gain valuable connections, all while continuing to meet your non-academic obligations.

Foundations require nonprofits to provide financial statements when they apply for grants. Major donors also may want to see financial statements before giving a significant gift. When a nonprofit shares more about its financial health, foundations and sponsors see that the nonprofit is financially viable and feel safer giving. Most nonprofits share these statements to be entirely transparent with their donors; often using these statements in their annual or impact reports. By sharing what funds they collect and how they’re spent, donors can see how their gifts support the nonprofit’s programs and beneficiaries.

• Nonprofit financial statements are similar to the financial statements for-profit businesses file, but there are some key differences to keep in mind.
• International companies may use a similar but different set of rules called International Financial Reporting Standards (IFRS).
• Together, these financial statements provide a picture of a business’s financial standing that is used by management, investors, governments, and lenders.
• For example, if your company is currently experiencing high profits and steady cash flow, you might be more inclined to take a risk such as entering an untested market.
• Finally, financing revenue comes from the earnings and interest earned on your financial activities and savings.
• By comparing financial statements to other companies, analysts can get a better sense of which companies are performing the best and which are lagging behind the rest of the industry.

In conclusion, understanding the intricacies of nonprofit Statements of Activities is essential for any nonprofit leader or stakeholder. These statements offer valuable insights into an organization’s financial health, mission statement of financial activities commitment, and accountability. Whether you’re running a nonprofit or considering supporting one, familiarity with Statements of Activities is a key step in ensuring transparency and responsible financial management.

NonProfit Statement of Activities Template.

Wellington Zoo also shares further details for each financial statement to explain who is reporting these facts and how they comply with accepted standards. Nonprofits use the statement of financial position to list their assets, liabilities, and net assets. The first and most desired financial statement is the Statement of Financial Position. Nonprofits use this statement to share what their organization owns and what it owes. Financial statements also give donors a better understanding of how the organization is doing. 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.

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. All of a nonprofit’s funds should be reinvested into the organization and its mission. Unrestricted revenue is the most flexible type of revenue and can be used for any purpose within the organization’s mission. It typically includes donations or grants that do not come with any donor-imposed restrictions.

How to Read and Interpret Financial Statements

Good practice requires the reporting of figures that both include and exclude such items. Whether a particular unusual item is likely to recur in the future may depend upon whether a short- or long-run point of view is taken. This statement can also be used to help you apply for grants and other funding opportunities.