For instance, if a nonprofit has three main programs, then each of the three programs will be listed along with each program’s expenses. AVAILABLE NOW – Great Beginnings for New Nonprofits, a free 8-part email course on fundraising, financial management and other “must know” topics. We have noticed in working with clients that people often relate to accounting the same way they relate to their checkbook.

• The letter from the independent auditor highlights their opinion that Save the Children is following all required financial laws.
• Join us for an exclusive event to learn how to do prospecting, pre-award, and post-award management in one place.
• The solution you decide on should also allow you to do some form of fund accounting.
• These are usually categorized into current liabilities and long-term liabilities.

Gross receipts are the primary difference between nonprofits and for-profit companies filing a statement of activities. 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.

Why Do Nonprofits Need Financial Statements?

It provides information about the overall financial health of your nonprofit. That’s because it shows the amount of flexibility you have in your funding to pay for additional operating expenses necessary for growth. The change in net assets without donor restrictions indicates if an organization operated the most recent fiscal period at a financial gain or loss. This line is a direct connection with and should be equal to the bottom line of an organization’s income statement (also called a Statement of Activities or profit/loss statement).

• The second equation you can use to find the liquidity of your organization – which is also based on blance sheet data – is the months of cash on hand.
• Looking up a nonprofit’s Form 990—using services like Guidestar.org—can tell you a lot about its financial state.
• For example, a nonprofit is likely to have a separate general ledger account for each of its bank accounts.
• Nonprofits must provide this information when filing Form 1023 to apply for 501c3 tax exemption with the Internal Revenue Service (IRS).
• Each of these statements is essential to provide different insights into your organization’s financial situation.

For more information about how to create a budget, check out the National Council of Nonprofits guide to Budgeting for Nonprofits. But there is one other major difference, and it’s the issue of restricted funds. On the Statement of Financial Position, your assets break down into current assets, fixed assets, and other assets. Assets are anything of value your organization possesses or is entitled to, such as cash, pledged donations, property, equipment, investments, etc. Warren Averett is a top accounting firm providing audit, tax, accounting and consulting services to companies across the Southeast.

Learn how to record in-kind donations

It is part of a nonprofit’s fiduciary responsibility to use donations according to donor intentions, helping to ensure transparency and maintain donor trust. Growing the asset base can be achieved through several strategies, such segmentation as fundraising, grant acquisitions, prudent investments, and efficient operational practices. On the other hand, managing liabilities involves careful financial planning, judicious borrowing, and timely repayment of debts.

What is a statement of financial position?

The balance sheet can provide essential insights into the feasibility of this project. The balance sheet provides valuable information that can be used to develop financial strategies and forecasts. It helps organizations assess their financial stability and sustainability, determine the efficiency of their asset management, and make informed decisions about future investments and expenditures. Understanding a nonprofit balance sheet is crucial for monitoring your organization’s financial health.

What Needs to Be Included in Your Nonprofit’s Balance Sheet (AKA Statement of Financial Position)

The nonprofit balance sheet is also commonly referred to as a statement of financial position or statement of financial condition. This statement is based on the accounting formula, assets equal liabilities plus net assets. This equation is mirrored on a for-profit balance sheet; however, net assets are replaced with owners’ equity. The balance sheet offers the best overall perspective on the nonprofit’s financial health and stability.

Strategic Planning and Decision-making

The executive committee in a nonprofit organization has special responsibilities and authorities above all committees. Most often it can act on behalf of the full board and make decisions between board meetings when needed, or in urgent and crisis circumstances. An executive committee charter is drafted and approved by the board to enact the executive committee’s authority. This simple pre-assessment form can help you take the first step in determining any areas of growth your board may have. Your nonprofit’s vision statement is a concise, clear statement of your organization’s future direction and goals.

Below you can see an example non profit balance sheet which you can download here for free. Just because your nonprofit qualifies as tax-exempt under Section 501 doesn’t mean that all of your donors’ contributions qualify as charitable deductions. And it doesn’t mean that all of the activities your nonprofit spends money on aren’t taxable. Tax-exempt nonprofit employees are still subject to employment taxes, and your nonprofit could still be subject to sales, real estate and other taxes depending on which state it’s based in. One major difference between the statement of activities and the income statement is that instead of calculating net “profit,” the statement of activities calculates changes in net assets.