Mastering Nonprofit Financial Statements: A Step-by-Step Guide + template

Empowering unearned revenue nonprofits with automation insights, expert strategies, and product updates to revolutionize sponsorship and donation management. Explore top child sponsorship organizations based on transparency, impact, and community focus to find the right fit for your values. Don’t forget to separate items into “with donor restrictions” and “without donor restrictions” categories. Even if a nonprofit is exempt from federal income taxes, it is likely that its employees will be subject to employment taxes.

The Statement of Activities financial statement aims to show that the nonprofit is a good steward of its funds and is staying compliant with financial regulations.
It also includes investments in marketable securities beyond cash management purposes.
Nonprofits may or may not be exempt from sales taxes, real estate taxes, and other taxes depending on which state in the U.S. they are incorporated or operate.
Wellington Zoo also shares further details for each financial statement to explain who is reporting these facts and how they comply with accepted standards.
Board members and other leaders can use this statement for better insight into how much is available to pay expenses.

Statement of Cash Flows

An audit provides an added layer of assurance on the accuracy of financial statements. The systematic allocation of the cost of an asset from the balance sheet to Depreciation Expense on the income statement over the useful life of the asset. (The depreciation journal entry includes a debit to Depreciation Expense and a credit to Accumulated Depreciation, a contra asset account).

Why is revenue recognition complex in nonprofit financial statements?

These could include paying employee salaries and receiving donations or grants.
Having clarity on the various nonprofit revenue categories, terminology, and how these incomes affect statements is key for strategic planning and accurate finance management.
Operating revenue includes funds from donations, ticket sales, product sales, etc.
The accounting method under which revenues are recognized on the income statement when they are earned (rather than when the cash is received).
This article will be going to walk you through the process of drafting bylaws—and we even have four free nonprofit bylaws templates to share with you!

A positive net change in cash indicates that the nonprofit has more cash on hand than it did at the beginning of the period. When reading a statement of cash flows, you can quickly see how much cash came into the organization vs. how much went out. For example, if a nonprofit shows $10,000 of operating income and $16,000 of operating expenses going out of the organization, this can put the organization in the “red” if the pattern continues. Interpreting the cash flow statement allows nonprofit managers to not only ensure financial health but also to strategically steer the organization towards fulfilling its mission in the most effective manner. This insight is invaluable for both operational management and strategic planning, making the cash flow statement a critical tool for informed decision-making. Moreover, a well-documented cash flow statement helps nonprofit managers make informed decisions about budgeting and financial planning.

Understanding Nonprofit Cash Flow Statements: A Beginners Guide

Accurately track and analyze your nonprofit’s cash flows by partnering with the accountants at Jitasa. A gain is measured by the proceeds from the sale minus the amount shown on the company’s books. Since the gain is outside of the main activity of a business, it is reported as a nonoperating or other revenue on the company’s income statement. An organization without owners and with the main purpose of providing services needed by society. Internal Revenue Service, a nonprofit organization may be granted tax exempt status. The U.S. Internal Revenue Service (IRS) nonprofit cash flow statement requires some tax-exempt nonprofit organizations to file Form 990 (some can file Form 990-EZ) each year.

For example, a company will have a Cash account in which every transaction involving cash is recorded. A company selling merchandise on credit will record these sales in a Sales account and in Accounting for Churches an Accounts Receivable account. For the past 52 years, Harold Averkamp (CPA, MBA) has worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. Nonprofit Artificial Intelligence and Automation tools are reshaping the sector. The advantage of scenario planning is that you already have a tentative plan in place to respond accordingly when and if these situations do arise.