If you’re on budget or have a surplus, it will show potential donors that you’re a responsible organization. However, if you’re facing financial challenges, such as overspending, you may need to take a look at your expenses and see where you can cut back or look for other opportunities to get funding. Creating a nonprofit budget template can be a valuable tool to organize your financial data, plan for future expenses, and ensure fiscal responsibility within your organization. The nonprofit statement of activities provides valuable insights into the organization’s financial health and performance. Interpreting this statement involves analyzing key ratios, trends, and indicators that paint a comprehensive picture of the organization’s financial position.

Template Flexibility

• Nonprofits must assess the likelihood of collection and the time frame in which the pledge will be received to determine when and how much revenue to recognize.
• Secondly, the statement provides transparency and accountability to the organization’s stakeholders, such as donors, board members, and the general public.
• Generally, nonprofits try to limit their operating expenses as much as possible to lower their overhead.
• Unrestricted revenues can be used for any legal expenses that a nonprofit might have.
• By understanding its contents, you’ll be better positioned to sustain your organization in the long term.

By contrast, for-profit organizations can often categorize expenses in broad buckets like Sales, General and Administrative (SG&A), and Cost of Goods Sold (COGS) across several product lines. Although there are similarities in profit-and-loss elements, nonprofits must follow different rules and reporting structures. In this article, we’ll elaborate on the purpose of the statement of activities, describe how it’s structured, and explain why it’s so important for transparency and planning. We consider that there https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ is a time restriction on the funds allowing only 1/3 of the donation to become unrestricted in a given year.

What does a Statement of Activities Include?

Challenges can arise from complex funding arrangements or in-kind contributions. However, a well-defined policy, coupled with consistent implementation and thorough documentation, safeguards the organizations financial integrity and fosters confidence among donors and other stakeholders. This rigor contributes to informed decision-making, strengthens accountability, and ultimately supports the organization’s mission fulfillment. Within the statement of activities, revenue is categorized by source, providing transparency into funding streams and their impact on the organization’s overall financial health. This detailed breakdown enables stakeholders to understand the organization’s reliance on different revenue sources, assess its diversification efforts, and evaluate the sustainability of its funding model.

Insights Straight To Your Inbox

• You can include all restricted funds together or segment them by donation type.
• It provides a detailed overview of the organization’s financial transactions over a specific period, typically a fiscal year.
• At the bottom of the report, there’s a section dedicated to the organization’s net assets.
• For instance, a high fundraising expense ratio might indicate inefficiencies in fundraising strategies.
• Donorbox is an affordable and simple-to-use online fundraising tool with powerful fundraising features such as Recurring Donations, Crowdfunding, Peer-to-Peer, Events, Memberships, and more.

For nonprofit organizations, the financial report that meets the requirements for an income statement is called the Statement of Activities. It summarizes your revenues and expenses for a specific period and allows both your organization and stakeholders to understand how you’re managing your resources. Improved management of resources can help your nonprofit organization to achieve its goals more efficiently and effectively. By understanding how to read and understand this key nonprofit financial report, you can better allocate your resources and improve your organization’s overall 5 Main Benefits of Accounting Services for Nonprofit Organizations performance. Expenses are another important component of the nonprofit statement of activities.

• The Statement of Activities is a fundamental document for nonprofit organizations, serving as a financial roadmap that outlines the inflows and outflows of resources.
• These articles and related content is the property of The Sage Group plc or its contractors or its licensors (“Sage”).
• Nonprofit financial statements aren’t just helpful – they’re required by the IRS.
• Permanently restricted revenue consists of funds that are subject to permanent restrictions.
• Designed to let you track unlimited funds and manage your books with ease, MIP Accounting® software offers a simple way to manage intricate financial processes in a single, user-friendly system.
• Also presented are sample note disclosures related to liquidity management and expenses (Exhibit 3).

Don’t forget to enhance your nonprofit’s efficiency and funding potential with Instrumentl. Instrumentl is your go-to resource for all your nonprofit needs and questions. If you’re unsure how to make these distinctions, check out this post on the difference between restricted and unrestricted funding. By the end of the post, you’ll understand each section of the Statement of Activities, how they work, and how they come together to advance the sustainability and growth of your organization. Whether you know it or not, the Statement of Activities is the unsung hero in the financial story of your nonprofit.

Additionally, these statements verify that you are remaining compliant with financial regulations. A well-prepared statement of activities provides a transparent overview of a nonprofit’s financial performance. Accurate data, clear categorization, and consistent reporting periods are essential for providing valuable insights to stakeholders and supporting effective decision-making. Nonprofits use the statement of activities to review changes to their net assets and show revenue and expenses over the accounting year. In other words, it tracks your nonprofit’s financial performance and shows how you’ve used your funds to support your mission. All firms must closely monitor their financial performance in order to make wise judgments.