Assets are anything of value your organization possesses or is entitled to, such as cash, pledged donations, property, equipment, investments, etc. Beyond helping your organization meet legal requirements, they also promote transparency and help you evaluate your performance.

Nonprofits vs. For-Profit Corporations

Plus costs incurred but not yet paid, like payroll that won’t be paid until next month or vendor invoices with 30-day terms. External (audited) nonprofit financial statements must follow Generally Accepted Accounting Principles (GAAP) standards. That means must use accrual-basis accounting and record transactions in a specific way. But in a leadership role, you’ll need to understand both audited financial statements and internal reports to communicate effectively with your donors, grant-makers, board of directors, and your team. Utilizing these resources can greatly enhance a stakeholder’s ability to understand and effectively manage nonprofit financial matters.

How to Master the Art of Nonprofit Financial Statements

Before we dive into the cheat sheet, let’s define the three key components of a statement of financial position. At Altruic Advisors, our nonprofit accountants have helped more than 500 organizations across the country with outsourced accounting, Form 990 preparation, and nonprofit audit services. Nonprofit leaders wear many hats – fundraiser, program manager, team coordinator, administrator…the list goes on. Whether you’re a director, volunteer, or board member, you probably didn’t get into nonprofit work for the pleasure of reconciling bank accounts.

How to Prepare Your Nonprofit Financial Reports

Not-for-profit organizations have a fiduciary responsibility to show their donors what their finances look like at the end of each fiscal year. Also, well-organized financial documents are necessary to understand the health of a nonprofit. Charitable organizations may not pursue financial gain, but that doesn’t mean they don’t need funding to operate and further their cause.

• —is incorporating your statement of financial position into your nonprofit’s annual report.
• It shows how funds are generated and how they are used to support the organization’s mission and programs.
• Look for any significant changes in revenue sources or expense categories, and compare these figures to prior years to identify any trends or anomalies.
• Your team needs to spend countless hours entering receipts, invoicing clients, running payroll, and reconciling your books BEFORE you can get the reports you need to run your business the right way.
• This method, which we discussed previously with the donor-restricted funds, necessitates that organizations maintain accurate records of these funds and represent them on their Statement of Financial Position.

Aplos partners with Stripe Payments Company for money transmission services and account services with funds held at Fifth Third Bank N.A., Member FDIC. If you are ready for an accounting system that understands the needs of your organization, check out our guide, How to Save Time and Make Informed Decisions with Blackbaud Financial https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ Edge NXT Reports. When starting a new project or attempting to solve a problem that in any way involves finances, your first stop should be the Statement of Financial Position. This high-level overview provides the clearest picture of financial standing for the organization and often serves as a roadmap to decision making.

Positive net assets can indicate financial health; however, even that needs to be measured against the percentage of those net assets that are without donor restrictions. Nonprofits must follow generally accepted accounting principles (GAAP) when preparing their statement of financial position. Failing to follow GAAP can result in an inaccurate financial position and impact the organization’s ability to secure funding or maintain tax-exempt status. Nonprofits must accurately categorize their liabilities, such as accounts payable, accrued expenses, and deferred revenue. Incorrectly categorizing liabilities can result in an inaccurate statement of financial position. Donors are more likely to contribute to organizations with a solid financial foundation and a strong track record of financial management.

• Pay attention to any significant changes in these categories over time, as they can provide insight into the organization’s financial health.
• But with unique reporting requirements, restricted funds, and the need to prioritize mission-driven spending, nonprofit financial reporting comes with its own set of challenges.
• This makes it different from your statement of activities, which outlines performance over a given period.
• These may include personnel costs, professional services, office expenses, occupancy, utilities, and depreciation.
• Continue reading to learn what makes up this statement, who benefits from it, and some best practice tips for reading and creating your Statement of Financial Position.
• The principal amount must be preserved while the income generated from these assets can often be used according to the donor’s stipulations, typically for a specific purpose.

If the revenues earned are a main activity of the business, they are considered to be operating revenues. If the revenues come from a secondary activity, they are considered to be nonoperating revenues. For example, interest earned by a manufacturer on its investments is a nonoperating revenue. Since the Form 990 filed by the nonprofit becomes public information, you can learn much about a nonprofit by reading the information on Form 990. The website guidestar.org is a resource one can use to obtain financial (and other) information reported on nonprofits’ Form 990. The financing activities section of the SCF reports the amounts received from borrowings and also any repayments.

Lack of Internal Controls –  Mistakes to Avoid When Preparing a Nonprofit Statement of Financial Position

Comparing these results to those from past balance sheets can reveal upward trends to capitalize on or downward trends to reverse. On the other hand, if you focus solely on your liabilities, you may worry that they seem higher than usual and start to panic about how to address them. However, a review of your assets may indicate that even though your debts have increased, so have your assets and net assets. Plus, at the bottom of the page, Feeding America adds a link to view its audited financials for anyone interested in delving deeper into its financial situation and activities. Aplos has everything you need in one place for streamlined nonprofit and church management.

• The nonprofit even compares its results with the Better Business Bureau standard for charities, stating that it has gone above and beyond by allocating 75% of funds to program expenses and 21% to fundraising activities.
• Nonprofits must follow generally accepted accounting principles (GAAP) when preparing their statement of financial position.
• Maintaining accurate and transparent financial statements can be challenging for nonprofits, given their unique financial structures and the specific requirements imposed by donors and regulatory bodies.
• Obligations the organization owes to others, including accounts payable, loans, and deferred revenue.
• While many of the same concepts apply, NPO financial statements generally follow the Accounting Standards for Not-for-Profit organizations (ASNPO) which have some nuances and complexities that are important to understand.
• In contrast, the nonprofit balance sheet emphasizes accountability and responsible resource allocation, leading charitable organizations to report on net assets with and without donor restrictions.

While many of the same concepts apply, NPO financial statements generally follow the Accounting Standards for Not-for-Profit organizations (ASNPO) which have some nuances and complexities that are important to understand. Nonprofits face the critical task of allocating expenses between program services and support services, a process vital for illustrating the organization’s accounting services for nonprofit organizations commitment to its core mission. The accrual basis of accounting is highly recommended for nonprofits, as it records transactions at the moment revenues are earned or expenses are incurred, irrespective of cash movement. Providing financial training for staff and board members can increase their understanding of key metrics and improve their ability to interpret financial reports. To prevent this, nonprofits should implement a robust tracking system to monitor restricted funds.