Analyzing Non-profit Organization’s Balance Sheet: Key Considerations

The Statement of Activities is the Income Statement of a nonprofit organization. Unrestricted net assets are any funds your nonprofit has received from donors that have no rules or conditions attached to them, like a pure cash donation. The statement of functional expenses gives donors more details on how the organization spends funds. The IRS also requires nonprofits to include this statement when filing Form 990. Liabilities include things like salaries, debt, and grants to other organizations.

What Other Nonprofit Financial Statements Are Important?

When a for-profit business has assets, they can usually use them however they want– to buy equipment, give raises, invest in real estate– but nonprofit assets are often more complex. The Statement of Financial Position gives you a snapshot of your financial health by revealing the underlying value of what your organization owns. But in your audited nonprofit financials, it will be called a Statement of https://immobiliervarnam.com/notes-receivable-the-impact-of-notes-receivable-on/ Financial Position.

Subscribe for Educational Content

This is the part of the tax code that concerns charities, nonprofits, and religious organizations that are exempt from paying federal taxes to the IRS. For the most part, however, cash flow statements for non and for-profits are very similar. If you’ve dealt with for-profit cash flow statements before, this should look very familiar. Once you’ve got a bookkeeping system in place, you need to start creating financial statements. Looking at these documents can tell you how much money you have, where your money is, and how it got there.

Why do nonprofits need financial statements?

Nonprofits are required to make their nonprofit financial reports available to the public, especially if they are tax-exempt 501(c)(3) organizations. Each method affects how revenue and expenses appear in your financial statements, so it’s important to choose the method that best reflects your operations. Sometimes, what appears to be lessening resources results from your organization using what it has to make improvements and invest in your nonprofit’s future. First up on your journey to becoming a nonprofit balance sheet expert is exploring exactly what this financial statement entails. 2025 Federal Funding FAQ’s As federal policies continue to evolve, nonprofit organizations must stay informed about executive actions that may impact their operations, funding, and compliance requirements. Creating a nonprofit balance sheet is not just about filling in numbers; it’s telling the financial story of your mission in a step-by-step process that ensures data accuracy, clarity, and strategic insight.

But in a leadership role, you’ll need to understand both audited financial statements and nonprofit balance sheet internal reports to communicate effectively with your donors, grant-makers, board of directors, and your team. If you’re like most nonprofit leaders, you didn’t get to the top of your organization by burying your nose in nonprofit financial statements. It is possible to utilize multiple non profit balance sheet templates to create a more detailed version of the template you use for your business. In addition, if you are using the same template for your personal business and for your non-profit organization, it is best to use the same template for both types of accounting purposes.

Regular audits, software for bookkeeping, and employee training all contribute to having a sound yet transparent financial foundation built on accuracy. Think of your balance sheet as a strategic asset and one of the major players in the financial sustainability and success of your nonprofit organization. Another important aspect in maintaining stability over financial resources involves accurate, real-time cash flow monitoring. Keeping cash flow projections updated on a regular basis can take into consideration factors such as seasonality and the timing of fundraising events. This planning shows how to appropriately schedule disbursements and build reserves in lean times. Give them the skills to handle sophisticated financial systems by doing proper staff training through workshops and webinars.

The primary reason for this differentiation is the concept of fund accounting, a system nonprofits employ to keep track of revenue sources that are earmarked for specific uses. This method, which we discussed previously with the donor-restricted funds, necessitates that organizations maintain accurate records of these funds and represent them on their Statement of Financial Position. The Statement of Financial Position (SOFP) is the correct nonprofit term for the balance sheet. The last thing to note is that gaining a comprehensive picture of a nonprofit’s accounting and financial health relies on more than the snapshot a balance sheet provides. Reading and understanding other financial documents, briefly covered below, is necessary to fill the gap. While it may not be mandatory to publish your balance sheet specifically, it is a key part of the financial statements included in your annual reporting.

• The above template is an example of that and can be used very effectively to meet this need.
• These liabilities—as they are integrated into the nonprofit financial structure—form the basis for thoughtful planning and sustained orgnizational impact.
• Plus costs incurred but not yet paid, like payroll that won’t be paid until next month or vendor invoices with 30-day terms.
• This nonprofit budget template free download comes in an Excel format to make it easy for you to calculate income and expenses.
• Board members and other leaders can use this statement for better insight into how much is available to pay expenses.

Notes can clarify accounting methods, commitments, contingent liabilities, or any significant events that might bookkeeping impact financials. Both our templates for an organizational chart for nonprofit organizations and board structure chart are in PowerPoint and show a hierarchy. The main difference is that one is designed from a nonprofit Board of Directors perspective and the other is an organizational chart structure for a nonprofit. The advantage of outsourcing isn’t just in the time saved but also in the accuracy and timeliness of your financial reports.

How can Taxfyle help?

Net assets on a balance sheet are crucial indicators of an organization’s financial health. They represent the difference between total assets and total liabilities, showing how much value the company actually owns. High net assets signal a strong financial position, while low net assets may indicate financial instability or debt concerns. When assessing the financial health of a nonprofit, it is important to look at both new financial and for-profit income statement. Financial analysis can be done by calculating financial ratios to determine the financial gain of the organization.