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Nov 16 2018

Guide to the Nonprofit Statement of Financial Position Report

What is a nonprofit statement of financial position report and how can it determine if a nonprofit is healthy financially?

 

In a previous blog we explained what Net Assets are on a nonprofit’s statement of financial position (commonly referred to a Balance Sheet) and what they represent, but what about the rest of the statement? Now we will cover how to read and interpret a statement of financial position and tell if a nonprofit is healthy financially.

Nonprofit Statement of Financial Position Breakdown

The statement of the nonprofit financial position report provides an overview of what an organization is worth. Depending on whether you use cash versus accrual accounting for nonprofits, the statement breaks it down into three categories:

  • Assets
  • Liabilities
  • Net Assets

Assets Section

The assets section is categorized by current, fixed and other assets.

Current Assets contain cash, investments, accounts receivable, and prepaid expenses.

Fixed Assets contain buildings, vehicles, furniture and large equipment and their accumulated depreciation, which helps you determine the net value of your fixed assets.

And other assets, which include long term receivables.

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Liabilities Section

The liabilities section is also categorized by current and long term liabilities.

Current liabilities contain your payables, accrued expenses, payroll tax liabilities and short term loans.

Long term liabilities contain the long term payables, such as mortgages, or loans.

Essentially assets are what your organization owns and liabilities are what your organization owes.

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Net Assets Section

And the difference between your assets and liabilities are your Net Assets, or the net worth of your organization.

The Net Assets amount is also calculated by the cumulative difference between revenue and expenses over the course of your organization’s life. But, the nature of nonprofit revenue requires that revenue be classified as either unrestricted, or with donor restrictions or designations.

So the net asset section of your statement of financial position will have unrestricted net assets, or funds that can be used for the general benefit of the organization and Designated Net Assets which are funds that must be used in compliance with the restrictions placed on the revenue by the donor.


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Bottom Line

So, when reading a statement of financial position a healthy nonprofit will have assets that are greater than their liabilities and their net assets will have a large surplus to be used to achieve its goals in the future.

As a nonprofit, your mission is your main goal, however a net asset surplus is key to the growth and sustainability of the organization.

Want to read more? Check out these insightful articles:

  • What Is Fund Accounting: Guide to Proper Stewardship of Funds
  • Why Using Spreadsheets for Nonprofit Financials Spell Danger
  • 3 Key Advantages of Fund Accounting Software for Nonprofits
  • Chart of Accounts for Nonprofits: Guide to Proper Setup
  • Nonprofit Accounting Questions: Blueprint for Compliance
  • Nonprofit Net Assets and Balance Sheet Explained
  • How to Read Your Nonprofit Statement of Activities Report
  • Nonprofit Financial Statements: How To Generate Compliant Reports

Did you find this article useful? We welcome your thoughts and comments.

Written by Joseph Scarano · Categorized: Nonprofit Fund Accounting · Tagged: Accounting Software for Nonprofits, Form 990, IRS Form 990, Nonprofit Accounting, Nonprofit Accounting Software, Nonprofit Audit, Nonprofit Fund Accounting Software

About the Author

Joseph Scarano is the CEO of Araize, Inc., developers of cloud-based FastFund Online Nonprofit accounting, fundraising and payroll software solutions to help your nonprofit become more transparent, accountable and sustainable.

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