Financial statements for businesses provide insight into their financial health, allow them to secure loans, and keep shareholders informed. However, financial statements are just as important for nonprofit organizations by showing your donors, grantors, and board of directors how financially solvent your organization is as well as the direction your organization is taking toward the future. To help you save time, ensure accuracy, and get experienced analysis, our CPA firm in Chapel Hill generates financial statements for nonprofits as well as offers audits, reviews, and compilation services to help you succeed.
Nonprofit Financial Statements
Financial reports for nonprofit entities differ from those generated for businesses due to the rules and regulations nonprofits must adhere to. These statements include:
Statement of Financial Position
This is an overview of your organization’s financial state and is similar to a balance sheet in which assets (grants, cash, beneficial interests, and promised donations) are weighed against liabilities (outgoing funds including rent, utilities, payroll, and outreach). The equity at the end of the report will include net assets with and without restrictions. Restricted assets are assets a donor has specified for a specific purpose or that are dispersed over a set period of time.
Statement of Activities
The statement of activities outlines how net assets have changed over the fiscal year and shows revenue and expenses over a reporting period, similar to an income statement. This is a complex financial statement, especially where donor-restricted contributions are in place. Contributions with donor restrictions may not be recorded, based on the restrictions in place, though once these expire or the purpose of the donation has been fulfilled, the funds can be reclassified into net assets.
Statement of Functional Expenses
The statement of functional expenses lists expenses by category and explains the costs that each area incurred. These three main functions are:
- Program Services
- Management and General
Categorizing costs allows the auditors or board members to determine exactly where the money is going in the organization and will make it easier to see if there are areas where the expenses are out of balance or don’t make sense.
Statement of Cash Flows
The statement of cash flows divides cash flow into three sections, including:
- Operating activities
- Investing activities
- Financing activities
By looking at these activities, a non-profit can see how cash is flowing in and out of the organization.
Why Choose Steward Ingram & Cooper PLLC?
Since 2000, nonprofits in and around Chapel Hill-Durham have trusted us with financial statement generation as well as accounting, bookkeeping, and other financial services. We are committed to upholding generally accepted accounting practices (GAAP) as well as ethical accounting practices. Our team of CPAs and bookkeeping professionals is on your side to provide financial guidance and help you succeed.
Frequently Asked Questions: Nonprofit Financial Statements
Am I Legally Required to Have Financial Statements for My Nonprofit Organization?
Yes, nonprofit organizations are required to submit financial statements and other information with their Form 990.
Do My Financial Statements Need to Be Available to the Public?
Yes. By submitting these documents to the IRS on Form 990, the IRS will disclose the information to the public. At the same time, the nonprofit needs to make their records available for public inspection during regular business hours at their principal office.
Aside from Tax Information, Why Are Financial Statements Needed for a Nonprofit?
Your financial statements show you the overall financial position of your nonprofit and provides you with a clear picture of how revenue enters your organization as well as how it’s spent. You can use this data to spot trends, anticipate downturns in revenue, or see areas where spending may seem higher than needed and requires investigating.
Are Nonprofit Financial Statements the Same as For-profit Financial Statements?
They’re not identical, but there are similarities.
– Statement of Financial Position is basically a balance sheet that shows the financial state of the organization after assets and liabilities are counted.
– Statement of Activities is similar to an income statement as this shows the financial activity of your organization and the change in your assets after expenses are subtracted from revenue. It also shows where revenues and expenses are originating and can help you spot red flags.
– Statement of Cash Flow is the same as a cash flow sheet for-profit businesses use, except cash flow is divided into operating, investing, and financing activities.
– Statement of Functional Expenses is unique to nonprofits and shows expenses broken down by function. This shows donors how expenses are distributed.
What Happens If I Don’t Generate Financial Statements for My Nonprofit?
Often, your statements are used to fill out your Form 990 which is a form sent into the IRS that is used to help you keep your tax-exempt status. Thus, failing to generate financial statements could lead to losing your tax exemptions.