Statement of Activities: Reading a Nonprofit Income Statement

Sharing financial statements with donors is one of the best ways to ensure transparency and build trust. This section outlines the various sources of income your nonprofit receives, such as donations, grants, program service fees, membership dues, and investment income. It is crucial to categorize revenue types to gain insights into the sustainability of funding sources. Earned revenue includes categories such as contract revenue, program service fees, membership dues, and special event income. Other revenue includes investment income such as unrealized gains and losses.

This allows you to track and assess the financial performance of each initiative separately. FASB Statement 117 allows most nonprofits to present their functional expenses in the notes of their financial statements, but these expenses may also be presented on the face of the statement. Sometimes, revenue earned by nonprofit organizations has restrictions placed on it by the revenue source. For example, granting organizations may require the funds provided to be dedicated toward a specific service or purpose. The only difference between these terms is that “income statement” is more commonly used by for-profit organizations, while “statement of activities” is more popular among nonprofits. Many nonprofits find that the word “activities” better reflects their focus on mission-driven work and the fact that they bring in revenue from a variety of sources—not just earned income.

Get our FREE GUIDE to nonprofit financial reports, featuring illustrations, annotations, and insights to help you better understand your organization’s finances. Since functional expenses are a big theme for many investors, particularly the percentage of money you’re spending on programs, most nonprofit Statement of Activities are organized according to functional expenses. You can use unrestricted funds for any mission-oriented purpose, including paying general operating expenses and salaries. It includes donations, grants, fundraising, earned revenue, government funding, and special events.

What is restricted revenue?

The statement of activities is simply to show how the organization is using its revenue and expenses to support its mission. The statement of activities is the nonprofit parallel to the for-profit income statement. Its purpose is to provide detailed information about your organization’s transactions, showing how your expense allocation and revenue generation further your mission. In addition to being a helpful management tool, your financial statements are also essential to maintaining compliance with reporting requirements for tax-exempt organizations. They help hold your nonprofit accountable for its use of resources, ensuring you can maintain your 501(c)(3) status.

Code for Science & Society depicts their financial expenses on this page of their report rather concisely and transparently. There are two levels to the statement of activities; the summary level and the program level. Return to the Internal Reports Introduction page for links to greater detail on how to read various reports as well as recommended formatting. The first step in reading a Statement of Activities is to understand its purpose. For instance, if you have a donor that wants to donate to school technology, your report must show that. The restricted section in your report will educate all who view it that these funds cannot be used to pay rent or cover maintenance fees.

• Nonprofits can use this report to file Form 990 with the IRS and provide donors with transparency and trust in the organization.
• This is the nonprofit version of the income statement that is used to report the financial results of a for-profit business.
• If you haven’t seen one for your organization yet or want to try your hand at compiling one, use our template to get started.
• This revenue can stem from a variety of sources, such as donations, private & government grants, fundraising events, and membership dues.
• But, since auditable nonprofit financial statements, we’ll talk about accrual accounting practices in this article.
• 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.

Donated Materials – value of materials that have been donated to your nonprofit. Harold Averkamp (CPA, MBA) has worked as a university accounting instructor, accountant, and consultant for more than 25 years. If you hire an accountant, you will want to oversee it to ensure it’s done correctly. This is the most expensive option, but it’s also the easiest for you.

Nonprofit Financial Statements: The Complete Guide with Examples

It means the organization is doing well and is able to continue its operations. A donor could give a single donor that is to equally be split across 3 years. We consider that there is a time restriction on the funds allowing only 1/3 of the donation to become unrestricted in a given year. Websites like GuideStar also show a nonprofit’s Statement of what is the statement of shareholders equity Activities and use these details to award seals of approval. Here’s an example of a Statement of Activities that was a part of the organization’s audited financial statement in 2021 (page 5). Temporarily restricted funds that must be held for a short period will be unrestricted eventually, but they must be listed under restricted funds until then.

What is the statement of activities?

Your nonprofit works to accomplish its mission, and when it comes to communicating that to donors and external stakeholders, no document is as helpful as a statement of activities. If you haven’t seen one for your organization yet or want to try your hand at compiling one, use our template to get started. For instance, if your nonprofit has $55,000 in expenses and $65,000 in total revenue, it would appear that your net assets are positive, at $10,000. However, if $15,000 of your revenue is restricted, you’re actually $5,000 in the red and should cut expenses to maintain a sustainable organization. Be sure to pay attention to the net assets available to your organization under the “without restrictions” column of your statement of activities when analyzing the document for sustainability.

What Goes On The Statement Of Activities?

The statement of functional expenses gives donors more details on how the organization spends funds. The IRS requires nonprofits to include this statement when filing Form 990. The statement of activities is one of the main financial statements issued by a nonprofit organization. It is prepared instead of the income statement issued by a for-profit business. These standards provide guidelines for proper financial reporting, including the preparation of the Statement of Activities. While for-profits need to compile a profit and loss statement along with their income statement, nonprofits can skip that step because they’re not operating for profit.

It is crucial to categorize revenue types to make it easier to gain insights into the sustainability of funding sources both for internal purposes and external stakeholders. If you’re a voluntary health or welfare organization you also must present your expenses in a matrix, which includes both the natural and functional expenses by program, according to FASB Statement 117. These statements also show your nonprofit is staying compliant with financial regulations. The Financial Accounting Standards Board also requires nonprofits to report changes in net assets based on the restriction categories of permanently, temporarily, or unrestricted. Nonprofits must compile an income statement every year to be in accordance with the Generally Accepted Accounting Principles (GAAP).

Statement of Functional Expenses

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. If you use cash-based accounting, you’ll only record cash deposited into your bank during the reporting period. The Statement of Activities further breaks down your revenue and expenses according to any restrictions limiting how or when you may use them. In analyses where budgets or forecasts are used, the planning data most often originates from in-house Excel spreadsheet models or from professional corporate performance management (CPM/EPM) solutions.

This section outlines the various sources of income your nonprofit receives and should at the very least break it down by public support, earned revenues, and other revenues. Public support includes categories such as contributions/donations, donated goods, private grants, government grants, and indirect contributions. A nonprofit statement of activities example will have a heading, body, and bottom line. A multi-column format will be used to present the increases and decreases in net assets according to the intent of the donor with column headings for unrestricted, temporarily restricted, and permanently restricted. Get our FREE guide to nonprofit financial reports, featuring illustrations, annotations, and insights to help you better understand your organization’s finances.

Download All the Free Excel Templates You Need to Master Nonprofit Accounting

Nonprofits have essentially parallel reports, but because their accounting is different, the reports differ slightly as well. We typically break revenue into two categories; contributed and earned. 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. You must share this at the beginning of the year and the end of your financial period.