However, that does not mean that a nonprofit has no responsibilities whatsoever related to taxes. Nonprofits do need to file a form related to taxes that is known as a Form 990. This type of document allows both the Internal Revenue Service and the public to look at the nonprofit’s finances. Nonprofits need consistent review and reconciliation routines to avoid inaccurate reporting. Engaging in monthly or quarterly reviews, aided by financial management software, helps identify and rectify discrepancies to ensure the integrity of financial reports. Narratives should succinctly highlight achievements, financial strategies, and future plans in layman’s terms, while dashboards provide a visual summary of trends, ratios, and key indicators at a glance.

Templates

• Nonprofit financial statements are useful to donors and contributors to show that your nonprofit has efficiently allocated resources.
• This statement can be used to track your progress and make sure that your nonprofit is staying on budget.
• Heliconia Scholarship Foundation shares a financial report with its donors instead of an annual report.
• Investing in a fund accounting software simplifies processes and reporting, making it easy to avoid potential pitfalls.
• The surplus or deficit in the Statement of Activities shows if your nonprofit made or lost money over a certain time.

Cash basis accounting refers to tracking the revenue of a nonprofit every time the nonprofit receives physical cash. This page keeps you up-to-date with changes to FASB’s generally accepted accounting principles, best implementation practices and more. The path to accurate and effective SOA management is paved with diligence, education, and the strategic use of technology. By recognizing and addressing common mistakes, your nonprofit can safeguard its financial integrity, foster stakeholder trust, and, ultimately, enhance your capacity to fulfill your missions. The journey toward financial transparency is ongoing, but with the right practices in place, the impact of your nonprofit can only grow stronger. The Statement of Functional Expenses reports expenses based on their nature and function.

“Quality of work is exceptional and valued contributor on our board.”

Nonprofits unwilling to share this information should be questioned about their reasons for lack of transparency. Nonprofits will share this information with the IRS, but they may also share this report on their website and annual report to inform donors about the use of funds. Nonprofits need a Statement of Activities to show how they can afford program and fundraising activities. This report also shares how things can be improved by increasing revenue and decreasing costs. This article will discuss what a statement of activities entails and why nonprofits need them.

Expenses: How much money did you spend?

• By understanding where your money is coming from and going, you can make informed decisions about future expenditures.
• Long-term liabilities are car loans and mortgages, whereas current liabilities cover accounts payable debt like salaries and immediate payments.
• Simply, it reports your organization’s revenue and expenses during a specific period and the difference between them.
• A Statement of Activities will help nonprofits file Form 990 with the IRS and provide needed transparency to donors, foundations, and corporations.
• The tools and guidance you need to navigate changing standards and deliver the highest quality financial reporting.

Permanently restricted funds are given to the nonprofit to be used as investments. Ongoing training in nonprofit accounting principles is indispensable for financial personnel. Dedicating resources to professional development enriches staff’s comprehension of intricate accounting matters, promoting a culture dedicated to precision and adherence to standards.

Importance of Expense Allocation and Its Impact on the Nonprofit’s Efficiency

You should look at your Statement of Activities every month and compare to previous periods. Identify trends and changes in sources of revenue, expenses, and changes to net assets. While the goal of a nonprofit isn’t to turn a profit, if you don’t bring in more than you spend, you won’t be able to survive. And a little “profit” helps build your operating reserves to help you survive a slow-fundraising quarter or unexpected expenses.

Nonprofit Accounting Outline

• If you or your board come from the for-profit world, it’s okay to call it a Balance Sheet among your team.
• Once the conditions are met, these assets can be reclassified as unrestricted.
• This category of net assets requires careful tracking and reporting to ensure compliance with donor intentions and to maintain trust and transparency.
• It classifies cash as stemming from either investing, financing, or operating activities, just as the for-profit version of this document would.
• It’s important to find the balance between reducing overhead to fund your mission and ensuring you dedicate enough funding to your operating activities to continue growing and expanding your organization.
• By minimizing manual data entry, these tools reduce the risk of human error, ensuring that financial data is accurate and up-to-date.
• A Nonprofit Statement of Activities is a comprehensive report that gives a clear picture of an organization’s fiscal operations over a given period.

A clear breakdown of expenses also helps demonstrate your organization’s efficiency and commitment to mission-driven activities. For example, nonprofits record incoming funds only after meeting donor conditions, while for-profit companies can recognize revenue as soon as a sale is complete. 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. Your peers in the for-profit world have no choice but to focus on profit and loss reporting, but for you the prime concern is tracking how effectively resources are being applied to the mission. The revenues are broken down further into temporarily restricted, permanently restricted and unrestricted. Kristine Ensor is a freelance writer with over a decade of experience working with local and international nonprofits.

Even if a nonprofit is exempt from federal income taxes, it is likely that its employees will be subject to employment taxes. Nonprofits may or may not be exempt from sales taxes, real estate taxes, and other taxes depending on which state in the U.S. they are incorporated or operate. Jo-Anne is a certified Sage Intacct Accounting and Implementation Specialist, a certified QuickBooks ProAdvisor, an AICPA Not-for-Profit Certificate II holder, https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ and Standard for Excellence Licensed Consultant.