This includes bank statements, donation records, expense receipts, grant docs, and payroll info. To keep their financial documents clear and trustworthy for donors, lenders, and grantors. You should also include non-current assets on your Statement of Financial Position.

FASB 106: Accounting for Postretirement Benefits Explained

• Put in the effort to organize your financial data and improve your nonprofit’s approach to accounting now to make financial statements a breeze when it’s time to create them.
• For example, these assets become retained earnings distributed to shareholders.
• However, it may not provide a complete picture of the organization’s financial health.
• They paint a picture of your organization’s financial health so you can make informed decisions.
• This metric helps determine whether the nonprofit is balancing mission-driven spending with necessary operational support.
• Many organizations report some high-level financial data in the report itself, using charts and graphs to make it easier to understand.

In other words, https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ financial statements for nonprofits are reports that show how well a nonprofit is doing with money. It shows how much money the organization has and how it spends its money. While, nonprofit accounting helps nonprofits keep track of their finances. Consequently, it can help make informed decisions about how to allocate resources and manage risk and report performance transparently. Whether you add graphs to visualize your most important financial details or simply include your audited reports on your website, consider how you can cater to your audience’s interests and preferences. Engaging stakeholders in your financial reporting and providing transparency can turn reporting requirements into increased impact for those you serve.

• It’s probably the most practical financial statement a nonprofit Executive Director or CEO has for making intelligent decisions for their organization.
• The rest of the organization’s 2023 report is packed with interesting insights, quotes from individuals they’ve helped, and more.
• This is because “statement of financial position” and “balance sheet” are two different terms that refer to the same report.
• The Relay Visa Debit Card is issued by Thread Bank, Member FDIC, pursuant to a license from Visa U.S.A. Inc. and may be used anywhere Visa cards are accepted.
• This includes money from donors, loans from banks, and cash paid out for things like loan repayments or distributing funds to your projects.
• Many nonprofits that offer scholarships will invest scholarship funds for future use.

Nonprofit Accounting Training

First, they provide transparency and accountability to stakeholders, including donors, board members, and the public. By disclosing the organization’s financial activities and performance, these statements allow stakeholders to assess the nonprofit’s financial health and make informed decisions. Second, nonprofit financial statements are essential for compliance with regulatory bodies.

How To Create An Income Statement

• They provide valuable insights into the organization’s financial position, revenue sources, expenses, and cash management.
• These articles and related content is not a substitute for the guidance of a lawyer (and especially for questions related to GDPR), tax, or compliance professional.
• These indicators provide insights into the organization’s financial health, fundraising effectiveness, and allocation of resources.
• Today’s donors give as an extension of their identity to causes that mean a lot to them.
• 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).

For example, if unrestricted net assets are $120,000 and monthly expenses are $20,000, the operating reserve ratio is 6. This means the organization has enough reserves to cover six months of expenses. Generally, a reserve of three to six months is considered healthy, though this can vary based on the organization’s size, mission, and funding sources. The Key Benefits of Accounting Services for Nonprofit Organizations However, negative cash flow, particularly in operating activities, can indicate potential financial issues, as it may suggest the organization is struggling to cover its core expenses. The Statement of Cash Flows provides a detailed view of how cash is generated and used by the organization over a period. It categorizes cash activities into operating, investing, and financing, helping stakeholders understand liquidity and cash management.

The last of the four essential financial statements, the statement of functional expenses, is unique to nonprofits. In most accounting systems, expenditures are typically recorded as natural expenses, which are based on the nature of the payment. Each of the four core reports that nonprofits compile annually summarizes your financial data in a different way, providing unique insights into your organization’s current situation. They provide transparency and accountability to donors, volunteers, beneficiaries, and the public. They help in making informed decisions, ensuring compliance with regulations, building donor confidence, and contributing to the long-term sustainability of the organization.

What is the Statement of Cash Flows?

• Accrual basis accounting means that you record revenues and expenses when they are incurred or earned.
• Include details on how you’re meeting regulatory requirements and adhering to best practices.
• Each of these statements is critical to gain different insights into your organization’s financial situation and promote accountability with supporters, stakeholders, and the government.
• It is also worth noting that the valuation of assets is based on their historical cost or fair market value.
• Additionally, your income statement should include a section showing your net assets to demonstrate that you have been effective at managing your organization’s resources over the reporting period.
• Misclassifying these funds can lead to inaccurate financial statements and potential issues with compliance.

Donorbox is an all-in-one online fundraising platform for nonprofits of all sizes. Our simple-to-use and powerful features range from Donation Forms and Fundraising Pages to Recurring Donations, Crowdfunding, Peer-to-Peer, Events, Memberships, and more. You can also easily store and manage your donor and donation data on Donorbox. Our tool integrates with leading CRM tools to help you utilize this data to the max! When auditing becomes a standard practice within your organization, your board, staff, volunteers, and donors understand their responsibilities and hold themselves and others accountable. The IRS will audit your nonprofit if there are discrepancies in your tax reports, but instances of this are few and far between.

Categorizing expenses by function enables transparency and helps stakeholders understand how efficiently the organization allocates resources. Sage Intacct provided a single, cloud-based financial system that supports the entire organization, including 70 bookkeepers in the field. Overall finance efficiency improved by 10% and automated consolidations saved 60 hours per year. More importantly, the ability to do real-time consolidations, paired with robust reporting capabilities, gave the Diocese new levels of operational insight. With Sage Intacct, Vitamin Angels streamlined multi-entity accounting processes and adopted financial best practices. Accounting for multi-currency transactions, intercompany transactions and global consolidations takes place inside the accounting system, enabling a more consistent, faster close.

Good Practices for Financial Reporting

Since each of these core financial statements provides a different way to visualize the data you’ve collected, you can glean unique insights about your organization’s financial health from all of them. Let’s walk through the structure and purpose of each of these four reports in more detail. In simple terms, nonprofit financial statements are like a financial snapshot of an organization. They show how much money the organization has, how it is being used, and where it is coming from. These statements are crucial for transparency and accountability, as they allow stakeholders to assess the organization’s financial stability and make informed decisions. During planning, auditors evaluate risk factors and design procedures tailored to the nonprofit’s operations.

What is the audit timeline?

Also, the federal Office of Management and Budget says that if your nonprofit spends $500,000 or more in federal funds in a year, you’ll have to get a single audit. After they receive the items on the PCB list, your auditor will begin conducting the audit. Once it’s done, you’ll receive a letter from your auditor with a report discussing any issues they found and any recommendations they have for your organization.