Therefore, you need to make sure that your accounting system is well organized from start to finish, or else you may have errors in your statement. As you can see, the report is divided into the revenue and expenses along the vertical axis. Horizontally, the revenue and expenses are further categorized by restrictions statement of activities placed on the funds.

• Net Assets, or the “change in net assets,” represents the difference between total revenues and total expenses for a given period.
• The first category to appear on this financial report is revenues, or how much money the organization is collecting.
• A statement of activities is a comprehensive report that provides valuable information about an organization’s finances.
• While for profit organizations focus on generating profits and reporting net income, nonprofits do not aim to generate profits but instead reinvest revenue to further their mission.
• Reporting them helps financial leaders see where funding is going, and if your organization’s current programs will have long-term fiscal stability.

Key Components of the Statement of Activities

• The final calculation subtracts total expenses and losses from total revenues and gains, yielding the organization’s Change in Net Assets for the year.
• When filing nonprofit Form 990, this statement is required by the IRS.These reports can also be used to rate your organization, in fact, there are online websites that do just that- Guidestar and Charity Navigator.
• However, transactions which are unusual and infrequent but within control of management should be also reported as extraordinary items.
• Additionally, the Statement of Activities can be used to determine the sustainability of your nonprofit’s finances which guides you into making long-term informed decisions.

Expenses can be summarized into high-level categories or broken into specific accounts or classes. Join Dawn Lego from OneCause in this workshop to learn how to craft standout grant applications. Discover how funders evaluate proposals, avoid common pitfalls, and tailor your application to funder priorities for a higher chance of success. In this section, we will present a Nonprofit Statement of Activities example, along with a customizable template.

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Nonprofits review changes to their net assets using the Statement of Activities. This report also shows the annual accounting revenue and expenses.Net assets need to be categorized correctly with GAAP and IFRS. They can further be categorized contra asset account as restricted or unrestricted.The main difference between a nonprofit and a for-profit filing a Statement of Activities is gross receipts.

Unrestricted Revenue

The amount of that cost should be important https://www.bookstime.com/ infor­mation to any citizen reading these statements. In contrast, the water system reported oper­ating and indirect expenses of $48 million, but its charges, grants, and contributions totaled $56 million. Thus, this business-type activity generated net revenues of approximately $8 million (see point B) as a financial benefit for the government during this period. The disclosures related to liquidity should particularly assist creditors, donors, and other users in assessing the near-term availability of (and requirements for) cash.

Key Revenue Sources for Non-Profits

It’s important your client knows what the statement of activities is and how it is useful. Although it’s not the best information for internal decision-making, your client is still required to have a statement of activities prepared for many reasons. The basic flow is structured by listing all revenue and support sources first, followed by expenses, and then culminating in the net asset change. Revenues and gains often include contributions, program service fees, and investment income. Expenses are organized by functional areas, which demonstrates how money was spent on the mission versus administrative functions.

• In-kind contributions are frequently made to not-for-profit organizations in support of their goals and objectives.
• Transactions or other events that are either unusual or infrequent but not within control of management should be disclosed in the notes to financial statements.
• Once that time period lapses or the purpose of the funds is fulfilled, those funds can be used for something else.
• Stakeholders use this report to assess whether the non-profit is operating sustainably and efficiently.
• This should make that method more appealing because it reduces the complexity in preparing the statement, as well as its overall length.
• Beyond the quantitative data on the financial statement, nonprofits must offer qualitative insights into managing their liquid resources to meet everyday expenses.

• Thus, knowing the details of each revenue stream is vital for financial sustainability.
• Restricted revenue is earmarked for a specific intended purpose, while unrestricted revenue can be allocated to operations, projects, and other expenses at the nonprofit’s discretion.
• 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.
• Example 1 below depicts a NFP museum that is presenting its statement of activities following the minimum requirements in U.S.
• These controls should include clear procedures for recording transactions, reviewing financial reports, and approving expenditures.

While nonprofits should be mindful of any investment management fees, they are not required to report these separately. Instead nonprofits must report investment income net of related external and internal expenses. Nonprofits typically strive to minimize operating expenses to reduce overhead.