The Statement of Functional Expenses

This statement offers a clear insight into the financial activities and overall health of the nonprofit, making it a crucial tool for donors, board members, and other interested parties. For financial leaders in not-for-profit organizations, establishing standard procedures for maintaining an accurate Statement of Activities is not just best practice—it’s a necessity. These procedures are the backbone of transparent and reliable financial reporting, crucial for operational excellence and strategic decision-making.

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It is important to note that each nonprofit is unique, and the interpretation of financial performance should take into account the specific circumstances and objectives of the organization. Comparing your income and expenses between different time periods can be useful to track your organization’s https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ growth. For example, if your organization hosts a large annual event in October, you might expect your expenses to increase around that time. You’ll want to ensure that you’re bringing in enough income to compensate for your anticipated expenses. As a CPA working with nonprofits of all sizes, I’ve encountered numerous errors in Board of Directors’ financial reports and Statements of Activities documents.

Unrestricted Net Assets

• Program services, management expenses, budgeting, financial and administrative fees.
• Finally, financing revenue comes from the earnings and interest earned on your financial activities and savings.
• The result of each year’s financial activity is shown as the “change in net assets,” that is, increases or decreases to the related net assets categories.
• Organizations often designate a portion of their unrestricted net assets as operating reserves to ensure they have a financial cushion.
• These statements also show your nonprofit is staying compliant with financial regulations.

The purpose of the notes in nonprofit financial statements is to provide additional information and explanations that are not included in the main financial statements. These notes help to clarify and expand upon the information presented in the statements, ensuring that users have a comprehensive understanding of the organization’s financial position and activities. The notes may include details about accounting policies, significant events or transactions, contingencies, and other relevant information. They serve as a valuable tool for stakeholders, such as donors, board members, and regulators, to assess the financial health and transparency of the nonprofit organization.

The Nonprofit Finance Team Survival Guide

• The way expenses are categorized and reported in the Statement of Activities is not merely a matter of financial recording but a reflection of the nonprofit’s operational priorities and efficiency.
• Organizations will separate these expenses by programs, fundraising, and management.
• This helps you develop realistic budgets and allocate resources strategically to achieve your nonprofit’s goals.
• This information can help you identify potential problems early on and solve them before they become larger financial issues.
• It also enables them to reinvest in their mission, expand their services, and innovate, thereby increasing their impact.

Kristine Ensor is a freelance writer with over a decade of experience working with local and international nonprofits. As a nonprofit professional she has specialized in fundraising, marketing, event planning, volunteer management, and board development. Any other donations that do not come with a designation can be termed unrestricted funds. Since many of your expenses will cover salary, insurance, rent, utilities, events, technology, etc., you may find that your restricted funds are higher than unrestricted ones.

• You can also manage donors, send them automated donation receipts, add offline donations, let donors login and manage their accounts themselves, and more on Donorbox.
• They provide flexibility and support the organization’s ongoing operations and strategic initiatives.
• Today we are going to examine and learn how to understand your Statement of Activities, or Statement of Income and Expenses.
• Nonprofit organizations often categorize their expenses into different groups to better understand where their resources are being allocated.
• It helps stakeholders assess how efficiently the organization is utilizing its resources to achieve its goals.
• You may choose to break down your revenue into additional categories, such as Sources of Unrestricted Donations and Federated Campaigns.

Or create reports at the department level to make sure each team member gets all the information they need (and only the information they need). Or help you understand why your cash increased even as you lost money that quarter (maybe you dipped into your line of credit to make payroll). 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 is a snapshot of what your organization owns and what it owes to others at a specific point in time. These articles and related content is the property of The Sage Group plc or its contractors or its licensors (“Sage”).

• It is completely ok and acceptable to have multiple versions of your financial reports.
• Tyler places great emphasis on meticulous attention to detail in financial record-keeping, implementing efficient systems to ensure transparency and streamline operations.
• Aplos partners with Stripe Payments Company for money transmission services and account services with funds held at Fifth Third Bank N.A., Member FDIC.
• The statement of activities is a key financial report used by nonprofit organizations to provide an overview of their financial performance over a specific period.
• 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.

Unlike the SOA, the Statement of Cash Flows outlines cash inflows and outflows. It provides insights into liquidity and cash management instead of detailing income and expenditures. If you are interested in working for a nonprofit, it’s helpful to understand the differences between nonprofits and find ways to translate your experience into a job with one. From Executive Director to Program Manager, find out what you are a great fit for. It is common knowledge that businesses must pay taxes and file a federal income tax return each year, but for tax-exempt organizations, compliance requirements are different. While there is no federal income tax return required for not-for-profit companies, they must still complete an annual return, called Form 990.

While the Statement of Activities examines your revenue and expenses, this document focuses on your assets, liabilities, and net assets, offering a broader view of your organization’s financial status. The Statement of Activities helps you assess operational efficiency and determine if your organization is operating within its means. It also provides transparency for stakeholders, donors, and board members, ensuring they understand how funds are utilized to advance your mission. While a traditional income statement exists to show a profit, or Net Income, a statement of activities exists to show the change in net assets. Think of each fund as a mini organization within your company, each with its own budget and financial statements that track revenue, expenses, liabilities, assets, and equity (net assets).