Between fundraising, marketing, and keeping your programs afloat, your nonprofit team likely collects a variety of financial data. This information is crucial in making informed decisions about resource allocation and setting your organization up to prosper for years to come. The board of directors of a nonprofit has a fiduciary duty to ensure the organization is financially sound and that its resources are used appropriately. They review, approve, and provide oversight on financial statements and budgets. Costs must be attributed to the correct functional areas using systematic methods.

How to Use a Charity Auction Tax Deduction Correctly!

The net assets section of the Statement of Financial Position is an important part of nonprofit financial statements. It provides a clear picture of the organization’s financial health and sustainability. Understanding unrestricted net assets is crucial for nonprofits as it helps determine the availability of funds for various purposes. Unrestricted net assets are funds that can be used at the discretion of the organization’s management. They provide flexibility and support the organization’s ongoing operations and strategic initiatives. Under the Generally Accepted Accounting Principles (GAAP), nonprofits must prepare a statement of financial position, a statement of activities, and a statement of cash flows.

Mastering Financial Statements: Essential Accounting Practices for Not-for-Profit Organizations

Nonprofits must carefully review grant agreements to classify and recognize revenue correctly. Most organizations use standard accounting options like the Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS) for your nonprofit to be consistent and clear. Most-viewed nonprofits, measured by unique visitors to an organization’s pages in the past seven days. These articles and related content is the property of The Sage Group plc or its contractors or its licensors (“Sage”). Please do not copy, reproduce, modify, distribute or disburse without express consent from Sage.These articles and related content is provided as a general guidance for informational purposes only.

Classify Revenue and Expenses

A cash flow statement tracks the movement of cash into and out of accounting services for nonprofit organizations your organization. It’s important because it shows your nonprofit’s ability to meet short-term obligations, ensuring that you have enough cash to support day-to-day operations. Even if your organization shows a surplus in its statement of activities, a negative cash flow could indicate potential liquidity problems. Your financial reports must be easy to understand, transparent, and reflect your nonprofit’s financial reality. Regular, high-quality financial reporting will also enhance your credibility and help you secure grants, donations, and funding.

Audit and Assurance Services

Your size, your activities, and your funding sources will all determine which reports you need to run your business effectively. As we mentioned earlier, many nonprofits use these financial statements in their annual reports to show transparency and build trust in their organization. The above template is an example of a financial statement of a national council of nonprofits. There are several nonprofit organization working to achieve their goals but there is a requirement of a council where they all have to give their report. The top of the statement of financial position shows the assets of the organization, property, machinery, fixtures, inventory, accounts receivables, cash etc. The bottom part of the statement of financial position shows how those assets have been funded by liabilities such as supplier credit, bank loans, and by net assets.

• For example, interest earned by a manufacturer on its investments is a nonoperating revenue.
• To avoid this, nonprofits should ensure proper categorization of unrestricted, temporarily restricted, and permanently restricted funds.
• Under the accrual method of accounting, expenses are to be reported in the accounting period in which they best match the related revenues.
• In fact, nonprofit financial statements are so important that many nonprofit organizations will make their annual reports publicly available by sharing them on their website.
• Beyond the IRS requirement for tax-exempt organizations, efficient reporting opens the door to stakeholder trust and strategic decision-making.

The expenses listed in this statement are broken down further into exact expenses, including salaries, events, and administrative costs. A nonprofit’s statement of financial position can tell you how well the organization https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ is performing financially at a given moment in time. Generally, a healthy nonprofit will have assets that are greater than their liabilities, and their net assets will have a large surplus that can be used to achieve its future goals. For many nonprofits, donations and grants constitute a significant portion of their revenue. Donations can come from individuals, corporations, or other entities, often driven by the desire to support the organization’s mission.