While both show financial performance, a statement of activities is for nonprofits and focuses on changes in net assets, while an income statement is for for-profits and highlights net income. Unrestricted funds are those available for general use, while restricted funds must be used for specific purposes set by donors. Operating revenues reported in the enterprise fund financial statement should be reported as charges for services of business-type activities. Nonoperating revenues with the exception for taxes and investment income should be also reported as program revenues. Yes, nonprofit organizations must follow the Generally Accepted Accounting Principles (GAAP).

Key Components of a Nonprofit Statement of Activities

The P&L covers all the organization’s programmatic, fundraising, and administrative expenses incurred during the period. The statement also reports all the revenue generated during the period, regardless of the source. While for-profits need to compile a profit and loss statement along with their income statement, nonprofits can skip that step because they’re not operating for profit. The statement of activities is simply to show how the organization is using its revenue and expenses to support its mission. By providing a clear snapshot of the nonprofit’s economic activities, a Statement of Activities allows stakeholders to assess the organization’s financial health. This transparency and accountability is crucial for building trust with funders, donors, staff, volunteers, and even future supporters.

Importance to Nonprofits

The Statement of Cash Flows tracks the movement of cash in and out of your organization during a given period, typically the fiscal year. This statement categorizes cash flow by activity type, helping you understand where funds come from and how they’re spent. There are a few different ways that you can create a nonprofit statement of activities. You can hire an accountant to do Mental Health Billing it for you, use accounting software, or do it yourself. The program level goes into more detail and breaks down the income and expenses by program. This is useful for tracking the programs that are doing well and those that need more funding.

Revenue Components

• If you are wondering how this fits into the grant writing process over all, check out my (free) masterclass on the 5 steps to win grants.
• The Profit and Loss (P&L) statement, also known as an Income Statement, summarizes an organization’s revenues, costs, and expenses over a specific period, such as a quarter or fiscal year.
• So even though nonprofits aren’t designed to generate profits, they still have revenue and expenses that must be meticulously accounted for.
• This section details the fundraising, donations, grants, program service fees, membership dues, and investment income.
• The SOA details the revenue earned and expenses incurred during that period, as well as the resulting net position.
• Unlike for-profit entities, nonprofits must adhere to specific accounting standards that ensure transparency and accountability to donors, grantors, and regulatory bodies.

Organizations can also use this report to educate board members and staff leadership on financial needs and opportunities. Providing this report to the https://dnce.in/what-are-the-adjusting-entries-for-prepaid/ public on the website or annual report can give transparency and instill trust. Join thousands of nonprofits who have secured over $200 million in funding through Instrumentl.

• At the bottom of the report, there’s a section dedicated to the organization’s net assets.
• This lack of detail can conceal areas needing resource reallocation, hindering strategic financial planning and the effective use of funds toward the organization’s goals.
• The Statement of Activities is similar to an income statement in the for-profit world and helps nonprofits track their financial performance over a specific period, typically a fiscal year.
• Revenue represents all the funds a nonprofit has gathered over a specific period (generally the fiscal year).
• First, it helps nonprofit leaders make informed strategic decisions by showing where funds are coming from and how they are being spent.

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These statements also show your nonprofit is staying compliant with financial regulations. The Financial Accounting Standards Board also requires nonprofits to report changes in net assets based on the restriction categories of permanently, temporarily, or unrestricted. Yes, many accounting software platforms have built-in templates and features to generate financial statements automatically. These tools can streamline the process and ensure accuracy in your financial reporting. This section details the fundraising, donations, grants, program service fees, membership dues, and investment income.

This calculation shows the equity of your nonprofit organization and whether you have the revenue to cover expenses, creating a sustainable organization. Finally, one of the categories often listed as revenue on your statement of activities is your net assets released from restriction. These are the funds that you are now able to use as unrestricted revenue, although they may have been restricted in the past.

• Each year, nonprofit organizations are required to file Form 990 with the Internal Revenue Service (IRS).
• Pledges, accruals (non-cash, long-term liabilities), depreciation, and subsidiary income and expenses are all included in this report.
• If a nonprofit sells a building for $500,000 with a book value of $400,000, the $100,000 gain is recorded as an addition.
• Request that they walk you through the statement of activities so you can approach your work from a more informed position.
• You’ll need to record information about your organization’s expenses and revenue on your tax forms.
• This figure (surplus or deficit) is added to or subtracted from total net assets on the Statement of Financial Position at period end.
• Nonprofits in the U.S. follow Financial Accounting Standards Board (FASB) guidelines under ASC 958, while government entities adhere to Governmental Accounting Standards Board (GASB) standards.

Don’t Jeopardize Your Nonprofit Compliance with a Commercial Accounting System

Revenue with donor restrictions refers to any funds that donors have designated to specific initiatives, which the nonprofit can’t use as freely. Apart from a donor’s request, there are other reasons funds might be restricted. It could be based on time — for example, a grant that is restricted to only a two-year program — or this could refer to endowment funds, where the principal can’t be spent, only the investment income.

What Is Depreciation Expense and How Is It Calculated?

Nonprofits receive revenue from a number of different sources, all of which are essential to helping the organization pursue its mission. The majority of this revenue will be recorded as gross in your statement of activities. Nonprofits must compile an income statement every year to be in accordance with the Generally Accepted Accounting Principles (GAAP). The statement of activities can be incredibly helpful when your nonprofit is analyzing its finances and trying to determine what is a statement of activities where those hard-earned fundraising dollars go. As you can see, the report is divided into the revenue and expenses along the vertical axis.