Nonprofit Financial Statements: 4 Essential Reports to Know

Preparing financial statements for a nonprofit organization is similar to preparing them for a for-profit, as you will be gathering income and expense information. But how that information is presented is slightly different, reflecting the goals of transparency and accountability. Let’s review what needs to happen to create these financials and how they tell the story of your organization to donors and board members. Nonprofit accounting is a unique form of accounting used by charitable and mission-driven nonprofit organizations. It differs from for-profit accounting because it focuses on accountability rather than profitability. Nonprofit accounting uses specific rules and procedures to track how funds are being used and thus keep their leadership accountable to its donors and contributors.

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• Consequently, it can help make informed decisions about how to allocate resources and manage risk and report performance transparently.
• Start by collecting all relevant financial data for the period you’re reporting on.
• Unlike for-profit entities, non-profits aim to achieve their missions rather than generate profits for shareholders.
• Leaders of charitable nonprofits know that financial transparency will help preserve the important trust community members and donors place in a nonprofit.
• Liabilities represent what the organization owes, such as loans and accounts payable.

Whether you are new to accounting for non-profits or you are a seasoned non-profit accounting pro, it’s important to understand the value of balance sheets for non-profit organizations. We will go over each one in more detail below, but the four financial documents are their Statement of Financial Position, Statement of Activities, Statement of Cash Flow and Statement of Functional Expenses. Another important practice is adhering to specialized accounting standards tailored for charitable organizations. These standards, such as the Generally Accepted Accounting Principles (GAAP) for NPOs, ensure that financial statements accurately reflect the unique nature of non-profit activities.

Donor and fundraising highlights

The financial statements shown comprise a mix of publicly available financial statements, those that are being shared with the permission of the NPO and those that accounting services for nonprofit organizations have been anonymised at the request of the NPO. ‘Annual Report and Financial Statements’ is abbreviated to ‘AR&FS’ in the descriptions below. Similar to LLS, Heifer International has an entire page on its website devoted to sharing its financial information with stakeholders, including a graph that maps out its expenses over the fiscal year. Regularly reviewing your financial statements, monitoring net assets, and using the right software will help you maintain a financially healthy nonprofit. If you haven’t already, make sure to schedule time to review your financial statements and start using them as powerful tools for strategic decision-making. Understanding net assets is essential because it helps you manage donor restrictions and ensures that you are using funds in accordance with donor expectations.

Audit and Assurance Services

• It’s about building trust with your donors and making the most of every dollar to achieve your mission.
• Wellington Zoo – Its annual report uses audited financial statements to show the organization’s financial health.
• These notes provide additional information and explanations about specific items in the financial statements, significant accounting policies, and other disclosures.
• The Statement of Financial Position gives you a snapshot of your financial health by revealing the underlying value of what your organization owns.
• Understanding nonprofit financial statements is crucial for board members transitioning from the corporate world.
• This section will provide an in-depth exploration of the financial statements and reporting requirements specific to non-profit organizations.
• The number of accounts in a nonprofit’s general ledger could range from 30 to 1,000 or more.

They include statements such as the balance sheet, income statement, and cash flow statement to track assets, liabilities, revenues, and expenses. A good nonprofit financial statement provides the right visibility into your performance so you can make informed stewardship decisions and maintain donor trust and confidence. You can use the insights from this nonprofit financial statement to guide your annual budget planning. Plus, this publicly available information can provide current and prospective donors with the context they need to decide whether they’d like to support your nonprofit based on how it employs its funds. Many nonprofits include these statements in their annual reports to demonstrate accountability. Financial statements are not just for https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ compliance and reporting—they should be used as tools for strategic planning.

Basic financial policies for nonprofits

• NPOs rely on donations, grants, and fundraising activities to support their operations.
• Some key indicators to analyze in nonprofit financial statements include the current ratio, fundraising efficiency ratio, and program expense ratio.
• Perhaps the most important financial policy for any charitable nonprofit is a conflict of interest policy.
• They are also required to complete a Form 990 each year and submit it to the IRS.
• The components of a non-profit cash flow statement include cash inflows from operating activities, investing activities, and financing activities.
• They provide context, explain accounting methods, and clarify any financial mysteries.

The Statement of Financial Position, often referred to as the balance sheet, is a crucial financial statement for not-for-profit organizations. It provides a snapshot of the organization’s financial health at a specific point in time, detailing assets, liabilities, and net assets. This statement is essential for stakeholders to understand the organization’s ability to sustain its operations and fulfill its mission.