What is the statement of activities?

This transparency and accountability is crucial for building trust with funders, donors, staff, volunteers, and even future supporters. Each year, nonprofit organizations are required to file Form 990 with the Internal Revenue Service (IRS). This form is a public document that provides information about a nonprofit’s programs, mission, and https://kelleysbookkeeping.com/ finances—and part of it includes the Statement of Activities. Nonprofit accounting can feel complicated for nonprofits without a solid financial background, but there are ways to make filing reports easier. A Statement of Activities is similar to a for-profit income statement and is one of the four financial reports nonprofits must file.

  • But don’t fret – although it sounds complicated, these standard financial statements are easy to compile with the right tools and guidance.
  • MIP is today’s leading accounting software for nonprofits and government organizations.
  • For this example, we see the change in net assets between 2021 and 2020 (far right) for operating expenses.
  • This can be time-consuming, but it’s not as expensive as hiring an accountant.

If you’re starting a new nonprofit, a statement of activities is one of the 4 financial reports you must file. But, since auditable nonprofit financial statements, we’ll talk about accrual accounting practices in this article. That means your revenue https://business-accounting.net/ will also include any donations pledged in the period (whether you collected the cash or not) and any receivables (for services rendered but not yet paid). Restricted revenue for a nonprofit is revenue that is to be used to a particular purpose.

Fixing the Inability to Manage Data in Human Service Organizations

The P&L is important because it provides a high-level overview of how much money the nonprofit is bringing in and where it is being spent. This information can be used to make decisions about where to allocate resources and how to improve the organization’s financial health. It’s best to treat this “rule” as a guideline—when https://quick-bookkeeping.net/ reviewing your statement of functional expenses, look for areas where you could reduce overhead spending and put more funding toward your programs in the future. If you want to expand your organization, you’ll need to have enough cash on hand to cover your usual operating costs and take on additional expenses.

Return to the Internal Reports Introduction page for links to greater detail on how to read various reports as well as recommended formatting. Websites like GuideStar also show a nonprofit’s Statement of Activities and use these details to award seals of approval. For instance, if you have a donor that wants to donate to school technology, your report must show that. The restricted section in your report will educate all who view it that these funds cannot be used to pay rent or cover maintenance fees.

But also, things like programmatic expenses, or the cost of holding events should be included. These payments may have been made with cash, credit, or even through in-kind donations. If your nonprofit has a solid accounting system in place, you likely collect a lot of financial data. However, this data is only useful in helping your organization improve its operations if you can effectively analyze it and draw applicable conclusions.

Why Your Nonprofit Needs to Report a Statement of Activities

Investing revenue is the amount of interest you can make from investments. Investing expenses are the purchases of long-term investments and any payments on long-term investments like buildings, land, equipment, etc. Here’s an example from Code for Science & Society’s Statement of Financial Position from 2021. Our subsequent examples of other statements will be from this same report.

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If you’re unsure how to make these distinctions, check out this post on the difference between restricted and unrestricted funding. Here’s an example of a Statement of Activities that was a part of the organization’s audited financial statement in 2021 (page 5). Temporarily restricted funds that must be held for a short period will be unrestricted eventually, but they must be listed under restricted funds until then. Most nonprofits also apply for government, companies, or foundation grant funding.

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Nonprofits must follow all donor requests, and these donations must be listed under restricted funds on a Statement of Activities. Your nonprofit’s Statement of Activities must include your organization’s revenue, expenses, and net assets. Get our FREE GUIDE to nonprofit financial reports, featuring illustrations, annotations, and insights to help you better understand your organization’s finances.

The basis of Form 990 is the statement of activities and a statement of functional expense. Your nonprofit works to accomplish its mission, and when it comes to communicating that to donors and external stakeholders, no document is as helpful as a statement of activities. This section will delve more deeply into the key components that make up a Nonprofit Statement of Activities. Understanding these elements thoroughly is essential for comprehending a nonprofit organization’s financial health and operational efficiency. This means that the Statement of Activities reports on all the revenue earned, expenses incurred, and changes in net assets within this annual period.

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. Running a nonprofit organization requires talent, hard work, and determination. There are many moving pieces to success including managing people, fulfilling a purpose, and prioritizing events.

Using an example from a company, let’s say ABC Corporation wants to plan its upcoming year. After examining their statement of activities, they can determine which fund they need to allocate more money too in order to achieve their goals for the year. Sometimes, revenue earned by nonprofit organizations has restrictions placed on it by the revenue source. For example, granting organizations may require the funds provided to be dedicated toward a specific service or purpose. While for-profits focus on making as much income as possible to make more money for themselves, nonprofit organizations focus instead on how they can raise additional revenue to further their missions. All of a nonprofit’s funds should be reinvested into the organization and its mission.