Accounting for nonprofits is significantly different than a traditional small business or individual. Nonprofit organizations have their own set of rules and regulations for financial reporting and a statement of activities is just one of the many. So, what is a nonprofit statement of activities?
A statement of activities will show your nonprofit organization’s revenue and expenses over a specific reporting period. This information will show that your organization is a good steward of donations and is working to accomplish its designated mission or goal. Additionally, these statements verify that you are remaining compliant with financial regulations.
Your nonprofit statement of activities is the equivalent of an income statement of a for-profit. A statement of activities will show income and expenses over time. You will also be able to analyze your net assets and categorize your nonprofit’s revenue and expenses.
A nonprofit statement of activities serves the purpose of providing detailed information about your organization’s transactions and how those activities further your organization’s mission via your initiatives and programs. Your report will typically be created using information from your organization’s chart of accounts, hence the need for an organized accounting system and department.
Your organization can use this report to file a Form 990 with the IRS.
A nonprofit statement of activities will need to clearly identify the types of expenses. You use two classifications of expenses, natural expenses and functional expenses. Functional expenses indicate the activity where the expense incurred. A functional expense may include salaries, office supplies, cost associated with programs, and utilities. Expenses with a natural classification would only list the expense types rather than the programs associated with the expense.
You will also need to include your organization’s unrestricted and restricted revenue. Other revenue sources that you should mention include:
As mentioned above, it is very important to know the difference between restricted and unrestricted funds when creating your statement of activities. This, along with your net assets and change in assets, should be included in and clearly identified in your report.
For nonprofits, your statement of activities is one of the primary accounting documents that your organization produces – it’s also one of the most insightful. You are able to see how your organization is using its funding and how it is accomplishing your mission. It can also provide insight into the sustainability of your organization’s finances.
Although the primary report, there are other documents besides a statement of activities that are important for the financial health of a nonprofit. Documents such as your nonprofit statement of financial position, statement of cash flows, chart of accounts, and statement of functional expenses are all equally important.
Does your organization need assistance in setting up an organized accounting system? Contact our accounting department today to help with your nonprofit!