Long-term liabilities are car loans and mortgages, whereas current liabilities cover accounts payable debt like salaries and immediate payments. Beyond helping your organization meet legal requirements, they also promote transparency and help you evaluate your performance. We’ll help you determine if outsourcing your accounting and bookkeeping is the right decision for your organization. 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.
Structure of the nonprofit statement of activities
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But first, a quick note on nonprofit financial statements vs. internal financial reports…
Categorizing expenses allows stakeholders to assess how effectively the nonprofit directs funds toward its mission. A high proportion of expenses dedicated to program services typically indicates that the organization is using its resources effectively for mission-related activities, with minimal overhead. Positive cash flow in financing activities may indicate new funds from loans or donations targeted at specific projects, while negative cash flow often represents debt repayment or distributions. This section helps assess the organization’s financing strategy and its reliance on external funding sources to meet its needs.
How Do Cash Flow Reports Benefit Non-profit Organizations?
Nonprofit expenses are categorized to provide transparency in resource allocation, allowing stakeholders to see exactly how funds are distributed and used within the organization. By dividing expenses into distinct categories, nonprofits can demonstrate their commitment to using donor contributions responsibly and efficiently. This could be a red flag even if other financial statements appear profitable, as cash flow is a critical measure of day-to-day financial health. A healthy balance sheet will display positive net assets, which signals financial stability and the organization’s capacity to sustain ongoing operations. By comparing assets and liabilities over time, stakeholders can identify trends in financial growth or challenges, providing insight into the organization’s financial trajectory and resilience. Nonprofits may receive donations that donors, corporations, or foundations wish to use on specific programs or expenses.
This report can help you explain to your board why you have less cash even after a great fundraising month (maybe you invested in some much-needed equipment). But many times they don’t fully understand what the report is, and what they’re looking for https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ is something that’s not actually in the report. Essentially, it shows you how much money you’ve “made” or “lost” during that period, which is why it’s often called a Profit-And-Loss Statement (or an Income Statement) in a for-profit company. When a for-profit business has assets, they can usually use them however they want– to buy equipment, give raises, invest in real estate– but nonprofit assets are often more complex. The Statement of Financial Position gives you a snapshot of your financial health by revealing the underlying value of what your organization owns. 3 Please note that funds relating to Currencycloud’s services are not FDIC insured or protected by the Visa Zero liability protection policy.
- External (audited) nonprofit financial statements must follow Generally Accepted Accounting Principles (GAAP) standards.
- The U.S. Internal Revenue Service (IRS) requires some tax-exempt nonprofit organizations to file Form 990 (some can file Form 990-EZ) each year.
- You can run them with just a few clicks, and easily add columns for budget to actual, balances, and activity year-over-year.
- Preparing a cash flow statement is one of the challenges of non-profit accounting, as there can be a lot of complexity to the unique cash flow items of a particular organization.
Net Cash Flow
Awareness of common challenges and mistakes in nonprofit financial reporting can help organizations improve their financial management and maintain transparency. The Statement of Activities (SOA) is the correct nonprofit term for the report we may commonly have called the income statement, budget report, The Key Benefits of Accounting Services for Nonprofit Organizations profit & loss, income and expense report, etc. 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. While there are similarities in the basic principles of accounting, nonprofit financial statements focus on accountability to stakeholders rather than profitability.
When reviewing expense allocations, a high percentage dedicated to program services suggests the organization prioritizes mission-driven activities. Together, these sections give a comprehensive view of how a nonprofit generates, spends, and invests its cash, offering essential insights for evaluating financial sustainability and strategic decisions. This section reflects cash flow from financial transactions, such as taking out loans, repaying debt, or securing funds through special fundraising initiatives. Investing activities focus on cash flow related to long-term assets, such as purchasing or selling property, equipment, or investments. For example, buying new office equipment or upgrading facilities would fall under this section. Conversely, a negative change in net assets highlights that expenses were higher than revenue, signaling potential financial challenges that may require adjustment in budgeting or fundraising efforts.