The statement of activities report shows nonprofits how much money they have and how it is being used. This guide teaches the basics of reading and understanding a nonprofit Statement of Activities. It also helps predict your organization’s financial future.
Nonprofit organizations rely heavily on financial reports to make informed decisions about their operations. But often times, these reports are difficult to read and understand.
Key to Fulfilling Mission
Being a nonprofit does not mean, I don’t really care abut my finances. Understanding your finances and resources is extremely important to a nonprofit, because it provides insight as to whether or not you have the required resources to fulfill your mission. Today we are going to examine and learn how to understand your Statement of Activities, or Statement of Income and Expenses.
What is a Statement of Activities Report
A statement of activities is a report that nonprofit organizations prepare to show how much money they have and how it is being used. The report typically focuses on the total organization, and reports the following in multiple columns:
- Changes in net assets
A statement of activities is prepared every year to ensure that an organization has enough money to fund its projects. The report is essential for determining whether an organization can keep operating and has enough money to meet its obligations.
What are the key components of a statement of activities?
A statement of activities is a comprehensive report that provides valuable information about an organization’s finances. It typically includes data on revenues, expenses, and changes in net assets. Columns are included to report data for each class of net assets – without donor restrictions, with donor restrictions, and total. This report is important for nonprofit organizations because it helps them assess their performance and identify areas where they need to improve.
Segregates Financial Activity
The nonprofit Statement of Activities is one of the main financial statements of a nonprofit organization. Unlike a for profit income and expense report, a statement of activities must segregate financial activity by revenue classes to identify funds received without donor restrictions and funds with donor restrictions.
Shows Sources of Funds
The revenue section contains a breakdown of the major sources of revenue, such as contributions, program fees, membership dues, grants, investment income, and amounts released from donor restrictions.
Expenses Section Identifies Functional Areas
Expenses are reported in categories that identify specific functional areas, such as mission based programs, and support services including management and general and fundraising.
How can a Statement of Activities report be used?
The goal of a statement of activities is to determine whether an organization can fund its activities and if not, to pinpoint where changes can be made to increase revenue or decrease costs. The process of creating a statement of activities is not difficult and should not take long to complete.
used by nonprofits as part of their overall financial planning process. By understanding how much money an organization has available and where the money is being spent, nonprofits can make informed decisions about their mission, operations, and future.
An example of how a statement of activities might be used in practice is shown below:
The Foundation determined that it could fund its current operating budget for the upcoming year by increasing donations from individuals and businesses. After reviewing its current expenses (including salaries, rent, utilities, and other expenses) the Foundation determined that it could save $2,000 per month by canceling its health insurance policy for staff members. These changes would free up additional funds that could be used to support additional programs or services offered by the Foundation.
How to read and understand a statement of activities
Read the statement of activities
This statement is important for nonprofits because it helps to determine where changes can be made to fund necessary projects. The statement of activities is also important for nonprofits because it can help companies plan their resources and track their progress.
Understand the purpose of the statement of activities
This report identifies funds received without donor restrictions and funds with donor restrictions. Additionally, this report will identify how much money the organization spent on operating expenses and how much money was raised from donations. Using an example from a company, let’s say ABC Corporation wants to plan its upcoming year. After examining their statement of activities, they can determine which fund they need to allocate more money too in order to achieve their goals for the year.
Understand the revenue and expenses
The report breaks down your revenue and expenses according to any restrictions limiting how or when you may use them. To comply with Generally Accepted Accounting Principles (GAAP), you must break your revenue down into at least 2 categories: Restricted Revenue and Unrestricted Revenue.
Restricted Revenue includes any donations which have donor-placed restrictions on how or when the money can be spent, while Unrestricted Revenue includes any money which can be used for any purpose. You may choose to break down your revenue into additional categories, such as Sources of Unrestricted Donations and Federated Campaigns.
- Government Funding: Funds from local, state, or federal government organizations
- Earned Revenue: Income from the sale of goods, services rendered, or work performed
- Special Events: Revenue earned at fundraising events (You’re required to keep track of each event separately once it hits $5,000 in revenue). A statement of activities provides an overview of a company’s financial position and performance. The statement of activities can help investors understand how revenue and expenses are related, and how the company is performing relative to its peers. The statement of activities can also help managers track progress toward key goals, and make decisions about which areas to focus on next.
Understand the cash flow
If you’re looking to understand how your nonprofit is spending its money, the statement of activities is a valuable resource. It breaks down each type of spending into specific details, such as credit card payments and employee salaries. This information can help you identify potential problems early on and solve them before they become larger financial issues.
The statement also provides a snapshot of your organization’s liquidity and flexibility. Knowing how much cash you have available at any given time is important for maintaining stability in your finances.
The statement of activities can also help you assess your organization’s ability to service debt. By understanding where your money is coming from and going, you can make informed decisions about future expenditures.
Overall, the statement of activities is an essential tool for nonprofit leaders. By understanding its contents, you’ll be better positioned to sustain your organization in the long term.
Understand the change in net assets
It shows the change in net assets, which indicates the “profit” or “surplus” that the nonprofit made.
To calculate the change in net assets, you subtract net revenue from net expenses.
You should review your statement of activities monthly to identify trends and changes. If your organization has deficits in specific periods, those deficits should be offset by surpluses in other periods. If you’re spending more than you’re bringing in for several periods in a row, you need to figure out what’s going on and fix it before it gets too bad.
How can a statement of activities improve my nonprofit organization?
It is important for a nonprofit to easily generate this statement to measure if each of their mission based programs has the resources necessary to operate efficiently and can be sustainable for the organization. Without the proper matching of revenue and expenses, nonprofit management cannot generate the reports needed for funding sources, IRS reporting, and more importantly they will not be able to make informed decisions on their organization’s financial outlook.
Improved Financial Management
Improved financial management can help your nonprofit organization better allocate its resources and improve its overall performance. Improved financial management can help your nonprofit organization better plan for the future, and track its progress over time.
The statement of activities for your nonprofit organization provides an overview of the organization’s major activities and financial performance. The report can be used to improve fund-raising efforts by highlighting the different ways in which donations can be used to support your mission. By understanding the various sources of revenue and expenses, you can target potential donors and make more informed decisions about how to allocate resources.
Improved Management of Resources
Improved management of resources can help your nonprofit organization to achieve its goals more efficiently and effectively. By understanding how to read and understand this key nonprofit financial report, you can better allocate your resources and improve your organization’s overall performance.
To read and understand a nonprofit financial report, you first need to familiarize yourself with the Statement of Activities. This report breaks down your revenue and expenses by restrictions on how or when you may use them. The Statement of Activities is a great way to see where changes can be made to increase revenue or decrease expenses.
FastFund Accounting automatically generates your Statement of Activities with the proper segregation of revenue classes and expense functional categories. You don’t have to jump through hoops and spend countless hours manipulating your financial data from an accounting system that doesn’t automatically create this essential financial statement for your nonprofit.
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