Statement of Activities: Reading a Nonprofit Income Statement

You’ll use the statement of financial position to list your assets, liabilities, and net assets. Financial statements also give donors a better understanding of how the organization is doing. The Statement of Activities shows where your income comes from and how you spend that income. It enables regular financial check-ins, with your board reviewing the statement to ensure ongoing financial health. In this article, we’re going to break down the Statement of Activities and explain how to create one for your nonprofit. By the end, you’ll have a clear understanding of how it can help you manage your nonprofit’s finances better.

How can a Statement of Activities report be used?

If you’re starting a new nonprofit, a statement of activities is one of the 4 financial reports you must file. From developing a budget to reconciling accounts to managing grants, nonprofit accounting encompasses a variety of activities that allow charitable organizations to successfully manage their finances. When you understand key accounting concepts, The Key Benefits of Accounting Services for Nonprofit Organizations you can assess the financial health of your nonprofit and make operational adjustments as needed. Your nonprofit’s Statement of Activities, or income statement, breaks down your revenue and expenses over time. Typically, nonprofits will have a yearly Statement of Activities that allows them to categorize their revenue sources and expenses. When you subtract any outstanding financial obligations from your available resources, you can better evaluate your nonprofit’s financial health.

Do nonprofits have a profit and loss statement?

Your nonprofit statement of activities is the equivalent of an income statement of a for-profit. You will also be able to analyze your net assets and categorize your nonprofit’s revenue and expenses. Since nonprofit financial statements differ from traditional financial reports, we’ve put together this simple guide to reading those essential statements. Developing and enforcing robust internal controls is key to safeguarding financial accuracy. These controls should include clear procedures for recording transactions, reviewing financial reports, and approving expenditures.

Change in Net Assets: How much money did you make?

When in doubt, please consult your lawyer tax, or compliance professional for counsel. Sage makes no representations or warranties of any kind, express or implied, about the completeness or accuracy of this article and related content. Of course, not every nonprofit relies so heavily on donated goods or in-kind donations. Form 990 does not have to adhere to GAAP standards and contains additional information which, while relevant to the IRS, may be confusing for many of your stakeholders. The primary purpose of the statement of activities is to satisfy regulatory requirements, such as Generally Accepted Accounting Principles (GAAP) and Form 990 for the IRS.

AccountingTools

• Ideally, you should check your budget once a month so you can compare your budgeted revenue and expenses against your actual revenue and expenses.
• This means that a nonprofit statement of activities should have at least two categories.
• Tyler places great emphasis on meticulous attention to detail in financial record-keeping, implementing efficient systems to ensure transparency and streamline operations.
• Tom is a multi-disciplined leader with over a decade of experience in nonprofit operations, technology leadership in government, and over two decades of servant leadership.
• Providing this report to the public on the website or annual report can give transparency and instill trust.
• Additionally, these statements verify that you are remaining compliant with financial regulations.
• It’s good bookkeeping to check that high expenses in a particular area are intentional.

However, to stay compliant and transparent, a nonprofit must assign appropriate attention to the organization’s financial records. In this article, we focus on one of the financial statements your nonprofit should be generating regularly and using to assess performance, growth potential, and sustainability. They come from generous individuals who believe in the organization’s mission and want to make a difference. These donations can range from small, recurring monthly contributions to large one-time gifts. Secondly, the statement provides transparency and accountability to the organization’s stakeholders, such as donors, board members, and the general public.

Donations your nonprofit receives during events, campaigns, and other times throughout the year. We can help you modernize and optimize your accounting systems while also taking the time-sucking bookkeeping tasks off of your hands. And be the trusted financial partner you can turn to for answers to your questions and expert financial advice. As mentioned before, the GAAP are guidelines that accountants across all sectors follow. The Financial Accounting Standards Board (FASB) has implemented these principles to create consistency within the industry and increase financial transparency.

• It facilitates clear, transparent communication of financial performance during a specific period.
• It also helps donors and funders understand how their contributions are being utilized and the impact they are making.
• Find out what it takes for nonprofit finance teams to not only survive but thrive with our Ebook survival guide.
• And secondly, if you fail to file a 990 for 3 consecutive years, you’ll automatically lose your tax-exempt status.
• Nonprofits unwilling to share this information should be questioned about their reasons for lack of transparency.
• You probably embarked on your nonprofit journey motivated by social values, but it’s crucial to address the financial aspects of these missions as well.
• Nonprofits are unique because the focus is on accountability, not profitability.

Program service revenue

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. For instance, if your nonprofit has $55,000 in expenses and $65,000 in total revenue, it would appear that your net assets are positive, at $10,000. However, if $15,000 of your revenue is restricted, you’re actually $5,000 in the red and should cut expenses to maintain a sustainable organization. The nonprofit statement of activities and the income statement are two different terms that refer to the same report.

Statement of Activities (SOA): A Nonprofit’s Income Statement Equivalent

Tom is a multi-disciplined leader with over a decade of experience in nonprofit operations, technology leadership in government, and over two decades of servant leadership. Expenses can be summarized into high-level categories or broken into specific accounts or classes. Watch the highlights from Day 3 of Sage Future for real lessons in high performance. Quality software could be the missing ingredient to make your mission stand out. There’s no escaping the task of keeping your financial documentation up to date and trustworthy, but it doesn’t have to be a chore. This gives you and your stakeholders time to spot discrepancies and correct errors if necessary.

Search through 20k+ open grants

As we mentioned earlier, many nonprofits use these financial statements in their annual reports to show transparency and build trust in their organization. In this article, we’ll explain more about each financial statement, why and when nonprofits need financial statements, and share examples of how organizations have used them in their annual reports. Once the total expenses are subtracted from the total collected revenue, the result is a change in Net Assets.