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A statement of activities is a financial report that quantifies the revenues and expenses of a nonprofit organization for a specific reporting period. It is the nonprofit version of an income statement used by for-profit businesses. The statement of activities is important for nonprofits as it provides detailed information about the organization’s transactions and how they contribute to the organization’s mission. It helps analyze the net assets over time and categorizes the revenue and expenses. To prepare a statement of activities, the organization needs to gather data from the chart of accounts and categorize revenue and expenses by restrictions placed on the funds.
- The statement also provides a snapshot of your organization’s liquidity and flexibility.
- The statement of activities is simply to show how the organization is using its revenue and expenses to support its mission.
- This information can be used to make decisions about where to allocate resources and how to improve the organization’s financial health.
- 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.
If you use cash-based accounting, you’ll only record cash deposited into your bank during the reporting period. In the for-profit world, they call the difference between revenues and expenses net income (or profit). But also, things like programmatic expenses, or the cost of holding events should be included. These payments may have been made with cash, credit, or even through in-kind donations. Reading a Statement of Activities can be helpful for understanding a nonprofit’s overall financial picture.
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Meanwhile, horizontally, it’s split into your organization’s unrestricted and restricted revenue. 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. All of a nonprofit’s funds should be reinvested into the organization and its mission.
- It’s important your client knows what the statement of activities is and how it is useful.
- The statement of activities allows nonprofits to calculate their net assets by subtracting expenses from revenue.
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- Conversely, a statement of activities with natural classification would only list the expense types, such as salaries, utilities, office supplies, and others.
- For more information about how to create a budget, check out the National Council of Nonprofits guide to Budgeting for Nonprofits.
- Reading a Statement of Activities can be helpful for understanding a nonprofit’s overall financial picture.
Just because your nonprofit qualifies as tax-exempt under Section 501 doesn’t mean that all of your donors’ contributions qualify as charitable deductions. And it doesn’t mean that all of the activities your nonprofit spends money on aren’t taxable. Tax-exempt nonprofit employees are still subject to employment taxes, and your nonprofit could still be subject https://accounting-services.net/statement-of-activities-definition/ to sales, real estate and other taxes depending on which state it’s based in. This is important because nonprofits often have very specific rules around different funding sources. It is common knowledge that businesses must pay taxes and file a federal income tax return each year, but for tax-exempt organizations, compliance requirements are different.
What is Included In The Statement of Activities?
There are a few different ways that you can create a nonprofit statement of activities. You can hire an accountant to do it for you, use accounting software, or do it yourself. The program level goes into more detail and breaks down the income and expenses by program.
A Statement of Activities is one of the four required financial statements a nonprofit must file. Nonprofit accounting can feel complicated for nonprofits without a solid financial background, but there are ways to make filing reports easier. A Statement of Activities is similar to a for-profit income statement and is one of the four financial reports nonprofits must file. Simply, it reports your organization’s revenue and expenses during a specific period and the difference between them. Within both levels, information is given indicating the income and expenses of the nonprofit.
How Can You Use a Statement of Activities?
The statement also provides a snapshot of your organization’s liquidity and flexibility. Knowing how much cash you have available at any given time is important for maintaining stability in your finances. A statement of activities is prepared every year to ensure that an organization has enough money to fund its projects. The report is essential for determining whether an organization can keep operating and has enough money to meet its obligations.
Structure of the nonprofit statement of activities
PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. Contact Jitasa’s team of nonprofit accountants to compile your statement of activities. 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. Here’s an example of a Statement of Activities that was a part of the organization’s audited financial statement in 2021 (page 5).
Organizations can also use this report to educate board members and staff leadership on financial needs and opportunities. Providing this report to the public on the website or annual report can give transparency and instill trust. If the net income is positive, that means the organization is making more money than it’s spending. 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.
The nonprofit statement of activities separates revenue with and without restrictions so that organizations can see the flexibility in their funding in addition to the sheer amount of it. The numbers for your statement of activities are pulled from your organization’s chart of accounts, and the net assets are calculated using those numbers after they’re put into the income statement itself. 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. The results of each successive fiscal year’s financial activities accumulate on the SOFP, changing the net asset balances. Repeated annual deficits in the SOA will result in an accumulated deficit on the SOFP. Net assets with donor restrictions are usually never below zero, although special reporting may apply to an “underwater ” endowment balance (topic not covered here).
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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. Just like the tax return is generated using information from the income statements, the information reported on the Statement of Activities is used to complete the annual Form 990. An accurate and timely Form 990 allows nonprofits to protect their nonprofit and tax-exempt statuses, as well as serve as evidence of transparency and financial stability. Nonprofit financial statements are useful to donors and contributors to show that your nonprofit has efficiently allocated resources.
But, since auditable nonprofit financial statements, we’ll talk about accrual accounting practices in this article. That means your revenue will also include any donations pledged in the period (whether you collected the cash or not) and any receivables (for services rendered but not yet paid). Most nonprofit-friendly accounting software like QuickBooks Aplos or Nonprofit Treasurer will allow you to generate financial statements automatically. Although it’s possible to manually generate financial statements from your ledger or spreadsheet, it takes a ton of accounting knowledge and time to do it right. In most cases, it’s better to let your accounting software or a bookkeeper take care of this step for you.