While online templates like this https://holycitysinner.com/top-benefits-of-accounting-services-for-nonprofit-organizati/ one can be helpful, the best way to create an accurate, useful statement of financial position is to work with nonprofit accounting professionals like our team at Jitasa. Our services are designed exclusively for nonprofits, so we have lots of experience compiling balance sheets for organizations like yours. We’re also happy to help you apply the data in this report through audit preparation, tax filing, financial goal analysis, and various other activities to help your nonprofit achieve financial health and sustainability. These four statements represent the primarily financial statements that nonprofit organizations prepare; however, some may include additional statements that provide even more insight into the organization’s finances.

How are Liabilities Different in Nonprofit Accounting Systems vs Commercial Accounting Systems?

The Statement of Functional Expenses helps your organization comply with state and federal regulations (including filing your Form 990). It also helps you identify how much of your organization’s money is going towards mission-based activities versus fundraising or administrative expenses. A complete set of financial statements can help reveal your organization’s strengths, weaknesses, and areas for opportunity. Even though you don’t have to pay federal taxes, almost all nonprofit organizations (the few exceptions are listed here) must file an IRS Form 990 each year. It’s probably the most practical financial statement a nonprofit Executive Director or CEO has for making intelligent decisions for their organization. Nonprofits focus on mission-driven resources, distinguishing restricted and unrestricted funds, whereas for-profits prioritize profit generation and shareholder equity.

How to Develop Your Nonprofit Operating Reserves

Just like a balance sheet gives readers a snapshot view of what a company is worth, the Statement of Financial Position quickly shows what a nonprofit organization owns and owes. Not keeping your financial statements up to date (and accurate) can lead to huge ramifications, both financially and legally. One way you can mitigate this risk is to create SOPs for your finance team to follow. SOPs for common financial processes and procedures can reduce errors, increase efficiency, and maintain a smooth workflow. Correctly categorizing your current assets (e.g., cash, receivables) and long-term assets (e.g., property, equipment) is important, as is the correct separation of current liabilities (e.g., payables) and long-term liabilities.

Liabilities are debts that an organization owes to others.

They provide the flexibility needed to allocate resources efficiently and respond to changes and opportunities. If your organization has strong assets, you may assume it’s in a healthy position, but your liabilities may reveal significant debt coming due that your current assets can’t cover. Also, when you’re evaluating your assets, you may need to consider any donor-imposed restrictions. Your organization may have enough cash and other assets on hand to meet its short-term obligations. However, some of those assets may be restricted for a particular purpose and not available to pay general operating expenses. Throughout this guide, we have explored the fundamental aspects of the Statement of Financial Position and its critical role in nonprofit management.

These steps are essential for maintaining trust and fulfilling the organization’s accountability to its donors, members, and the communities it serves. In this section, you can find information about the cash generated from the sale of goods or services, as well as any cash payments made for operating expenses such as salaries, rent, and utilities. It also includes cash flows from activities such as grants, donations, and program-related revenue. In the Financing Activities section, the statement shows the cash flow from the organization’s financing activities, such as borrowing and repaying loans, issuing and repurchasing stock, and paying dividends. It provides insights into how the organization raises capital and manages its debt and equity.

• Nonprofits focus on mission-driven resources, distinguishing restricted and unrestricted funds, whereas for-profits prioritize profit generation and shareholder equity.
• They show how much money the organization has, how it is being used, and where it is coming from.
• These practices prevent financial mismanagement, promote donor confidence, and enhance the organization’s reputation, thereby supporting its sustainability and growth.
• Each report comes with a note from the independent auditor stating that they conducted the audit according to the Generally Accepted Auditing Standards (GAAS) to ensure that each document is free from any misstatement.
• It provides a snapshot of your organization’s financial health and helps you make informed decisions about your organization’s future.
• One key aspect of the additional disclosures is the disclosure of significant accounting policies.
• These tables provide a clear and concise overview of the organization’s assets, liabilities, revenues, and expenses.

Monitoring your net assets over time is crucial for understanding your organization’s financial health and making informed decisions. By comparing your net assets from year to year, you can see if your organization is accounting services for nonprofit organizations growing or declining and make adjustments accordingly. It’s important to understand the difference between these two categories and properly classify them in your statement of financial position. This ensures that you are using restricted funds for their intended purpose and maintaining transparency with your donors.

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. Understanding these challenges and adopting best practices for financial reporting can greatly enhance a nonprofit’s accountability and efficiency. Ultimately, your nonprofit financial statements are snapshots of your financial health and activities that you can use to improve your decision-making and secure more support down the line. A nonprofit consultant can work with your team to interpret your financial data and harness it for future growth. The Statement of Cash Flows shows the cash inflows and outflows from operating, investing, and financing activities of a nonprofit organization over a specific period.

Nonprofit Organization Statement of Financial Position Template

Work with the accounting experts at Jitasa to compile and analyze your nonprofit financial statements. The experienced team at Jitasa has compiled, distributed, and analyzed financial statements for organizations of all sizes. Plus, Jitasa works exclusively with nonprofits, giving you access to the expertise necessary to correctly craft these reports and glean applicable insights from them.

So, if a donor pledges to donate $5 per month, you record $5 of income each month when the donation is received, not when it is pledged. It’s best to treat this “rule” as a guideline—when reviewing your statement of functional expenses, look for areas where you could reduce overhead spending and put more funding toward your programs in the future. If your nonprofit has a solid accounting system in place, you likely collect a lot of financial data. However, this data is only useful in helping your organization improve its operations if you can effectively analyze it and draw applicable conclusions. This statement enhances transparency and ensures compliance, especially for nonprofits required to file Form 990 or undergo audits. It demonstrates how resources are used to advance your mission while maintaining operational efficiency.