Perhaps looking through these Sample Monthly Budget Sheets would be useful and helpful. accounting services for nonprofit organizations Other than that, it can also be a challenge, especially for someone who has not tried bookkeeping for nonprofit organizations as well as for public offices and the government. In addition to the common size analysis, analysts may also use other methods such as ratio analysis and trend ratios to further analyze the organization’s financial trends and performance. Once reviewed as a group, these financial statements should then be compared with those of other companies in the industry to obtain performance benchmarks and understand any potential market-wide trends. When used together with other financial documents, the balance sheet and P&L statement can be used to assess a company’s operational efficiency, year-to-year consistency, and organizational direction. From an accounting standpoint, revenues and expenses are listed on the P&L statement when they are incurred, not when the money flows in or out.

Why do nonprofits need financial statements?

For analysis, planning, and decision-making, it is important for an organization to understand what part of their net asset position is without restriction. The FAN example demonstrates the impact on the income statement of a multi-year grant. Accounting rules require a nonprofit to record all the income of a multi-year grant in the year it is received.

Is it obligatory for nonprofits to publish their balance sheets?

And because it’s an internal report, you can set it up to show the information however is best for your team. 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). The Statement of Cash flows is a relatively simple report that shows if your cash has increased or decreased across 3 segments of your business.

Long-term Liabilities

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. Generally accepted accounting principles (GAAP) call for an organization’s net assets to be classified as “with” or “without” donor restrictions. Net assets were formerly presented as unrestricted, temporarily restricted, or permanently restricted.

Your nonprofit’s statement of financial position is based on numbers pulled from your chart of accounts—a detailed list of all your accounts and ledgers. Your net assets are essentially the resources (which may or may not be monetary) you have available to fund your operations and mission-related activities. Separating out restricted and unrestricted net assets gives you a more detailed perspective on how much you can put toward each initiative and overhead expense you need to pay for. Get our FREE guide to nonprofit financial reports, featuring illustrations, annotations, and insights to help you better understand your organization’s finances. Get our FREE GUIDE to nonprofit financial reports, featuring illustrations, annotations, and insights to help you better understand your organization’s finances.

Statement of Financial Position vs Balance Sheet

For example, some nonprofits generate income through sales of products, whether these are merchandise, publications, or other goods related to their mission. Sponsorships, partnerships with for-profit entities, and endowment income can also play roles in diversifying revenue. It’s crucial for nonprofits to have multiple revenue streams to ensure financial stability and resilience, especially in changing economic climates. Fundraising events are public or private activities organized to generate revenue for nonprofit organizations. These events can range from galas, auctions, and dinners to walkathons, concerts, or bake sales.

• The above template is for that purpose and is very easy to understand and implement.
• By analyzing key components and interpreting financial ratios, stakeholders can gain valuable insights into the organization’s liquidity, debt obligations, and net asset composition.
• 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.
• The IRS provides this handy questionnaire to help you figure out exactly which parts of the tax code apply to your organization, and which form you’ll use to apply for tax-exempt status.
• While nonprofit assets are typically tangible items, some organizations may also own intangible assets like patents or copyrights.

Want to see a live breakdown of real-life nonprofit financial statements

• For example, they may contribute directly to program beneficiaries, or they may function more as program service expenses supporting the mission.
• Nonprofit Financial Statement Templates provide a standardized structure for reporting key financial metrics that nonprofit organizations require for oversight, planning, and grant applications.
• You can easily copy it into an annual report presentation and update it as your board changes.
• While tax-exempt status might be determined by the IRS and federal law, nonprofit status is determined by state law.
• Finding an accountant to manage your bookkeeping and file taxes is a big decision.
• Net assets on a non-profit organization’s balance sheet are classified into unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets.

You should consult your own legal, tax or accounting advisors before engaging in any transaction. The content on this website is provided “as is;” no representations are made that the content is error-free. Misinterpreting these liabilities can lead to an inaccurate https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ assessment of your immediate financial obligations. This goes back to the definition of short-term liabilities (current liabilities) and long-term liabilities, such as loans, payables, or deferred revenue. Accounting for nonprofits takes a different mindset compared to for-profit accounting, and there is scope for misinterpretation if undertaken by someone who doesn’t have the right skills and experience. This compares the amount of funds you allocate to your programs and services with the amount consumed by administrative or fundraising expenses.