Nonprofit Balance Sheet A Financial Health Check

A truthful balance sheet depends on the correct allocation of restricted versus unrestricted funds, considering both the timing and purpose of each type. The accrual method is especially important if your nonprofit has restricted funds, as it allows you to record donations and grants in the correct period, even if the cash hasn’t been fully utilized yet. Furthermore, WWF adds graphs that illustrate the nonprofit’s operating revenue and program spending growth over the past decade. The Statement of Functional Expenses reports expenses based on their nature and function. It allows you to remain transparent about your resource allocations to stakeholders and report expenses on your Form 990. Current assets are cash or assets you can reasonably expect to convert to currency within a year.

Expense Report Template

• For instance, by dividing your total current assets by your total liabilities, you can calculate your current liquidity ratio.
• The Statement of Cash Flows categorizes cash activities into operating, investing, and financing activities.
• Financial statements function as an organized system for reporting on your nonprofit’s resources, so your organization is regularly held accountable to itself, its supporters, and its community.
• This financial statement reports the amounts of assets, liabilities, and net assets as of a specified date.
• The Statement of Financial Position, also known as the balance sheet, shows a nonprofit’s assets, liabilities, and net assets at a specific point in time.
• A declining trend in unrestricted net assets, for example, might signal trouble, while growing program expenses alongside stable contributions could indicate positive momentum.

Temporarily restricted net assets are those subject to donor-imposed stipulations that will be met by the actions of the nonprofit and/or the passage of time. These restrictions are often tied to a specific project, purpose, or time frame, and the funds cannot be used for any other purpose until the stipulations are met. Your statement of financial position should provide insight into your organization’s liquidity or ability to meet its financial obligations. Additionally, you should be able to see your organization’s equity or net worth clearly. Having individuals with expertise in composing, reading, and analyzing balance sheets is important to fulfilling a nonprofit’s mission.

• On the Statement of Financial Position, your assets break down into current assets, fixed assets, and other assets.
• Properly balanced liabilities, corresponding with solid assets, indicate financial health and the ability to withstand financial pressures over both the short and long term.
• This not only enhances the accuracy of the financial statement but also aids in strategic planning and meeting the financial reporting requirements.
• Nonprofit organizations face various risks and uncertainties that may impact their financial stability and ability to achieve their mission.
• You can use nonprofit financial statements to monitor income, control expenses, and ensure financial sustainability.
• 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.

How to Make Managing Your Nonprofit’s Finances Easier

• If the revenues earned are a main activity of the business, they are considered to be operating revenues.
• Org B’s presentation shows it has planned for financial stability by maintaining operating cash and setting aside reserve funds in addition to investing in some equipment.
• Like assets, liabilities also look and function similarly across for-profit organizations and nonprofit organizations, but there are a few notable distinctions.
• The following table compares the main financial statements of a nonprofit organization with those of a for-profit corporation.

If the equation yields a positive result, assets are greater than liabilities, then your organization has positive net assets, or a surplus in assets. When liabilities are greater than assets, an organization has negative net assets, or a deficit in assets. Within the Statement of Financial Position, liabilities are ordered by maturity, so current liabilities are listed before noncurrent liabilities. Examples of budgets used in business include the cash budget, sales budget, production budget, department budgets, the master budget, and the capital expenditures budget. Liabilities also include amounts received in advance for a future sale or for a future service to be performed. Even if a nonprofit is exempt from federal income taxes, it is likely that its employees will be subject to employment taxes.

Break-Even Analysis Template

Keep a record of everything so that you can monitor the money that is entering your organization. You will know the financial feasibility analysis status of your organization through the statement. Mastering these nonprofit financial statements examples isn’t just about checking regulatory boxes – it’s about empowering your organization to make better decisions, build trust with donors, and ultimately create more impact. The Statement of Financial Position report is required by the IRS and must be submitted with the organization’s Form 990. This report is more like a financial overview of the entire organizations financial health.

Net Assets

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). The Statement of Cash flows is a relatively simple report that shows if your cash has increased or decreased across 3 segments of your business. You’ll discover what information each report includes, how to use it, and additional resources for exploring The Key Benefits of Accounting Services for Nonprofit Organizations in more depth.

• When you mail out a book, the postage on that shipment is considered a program expense because it is directly related to your mission.
• These activities include obtaining loans, issuing bonds, and receiving contributions from donors.
• When assessing the financial health of a nonprofit, two key areas to focus on are liquidity and solvency.
• In this guide, we will break down the different types of financial statements used in the nonprofit world, how to read them, and how you can use them effectively for strategic planning and reporting.

By analyzing the operating activities section, stakeholders can assess the organization’s ability to generate sufficient cash to cover its ongoing expenses and support its mission. In addition to these statements, nonprofit financial reporting may also include notes to the financial statements. These notes provide additional information and explanations about specific items in the financial statements, significant accounting policies, and other disclosures. The sections of your nonprofit’s statement of financial position correspond to three of the five divisions of your chart of accounts (COA), which is essentially a directory of your organization’s financial records. This makes it easier for your accountant to pull the data and for your team to refer back to the source for more detailed information as needed.

Liabilities

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.