Nonprofit Balance Sheet Guide & Template

They provide flexibility and support the organization’s ongoing operations and strategic initiatives. A nonprofit statement of financial position (referred to as a balance sheet in a for-profit company) is a financial statement that provides a snapshot of an organization’s financial position at a specific point in time. It shows the organization’s assets, liabilities, and net assets (equity) as of the reporting date. This statement is a fundamental part of a nonprofit organization’s financial reporting and helps stakeholders understand the organization’s financial health and resources available for its mission-related activities.

Significant Accounting Policies

Should this seem intricate, you might consider to outsource your accounting to ensure precision. Remember, a well-maintained nonprofit statement of financial position is a testament to sound accounting practices. You’ll want to know that the information you are looking at is accurate so you can make informed decisions. Having individuals with expertise in composing, reading, and analyzing balance sheets is important to fulfilling a nonprofit’s mission. If your organization needs such expertise, consider hiring indinero’s accounting experts. We’ll provide expertise at a fraction of the cost of a full-time employee or in-house team.

Net Assets

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. Contact us today to get expert advice and assistance on how to master your nonprofit financial statements! Monitoring the movement of your net assets will allow you to make better financial decisions and ensure that your resources are used in the most effective way. Your financial reports must be easy to understand, transparent, and reflect your nonprofit’s financial reality. Regular, high-quality financial reporting will also enhance your credibility and help you secure grants, donations, and funding. In this guide, we will break down the different types of financial statements used in the nonprofit world, how to read them, and how you can use them effectively for strategic planning and reporting.

• This practice not only reinforces the organization’s commitment to financial transparency but also enhances its ability to respond to internal and external changes effectively.
• In nonprofit entities, the balance sheet is called a Statement of Financial Position.
• Preparing clear and compliant nonprofit financial statements is a fundamental responsibility of nonprofit organizations.
• Cash is the most liquid asset, while property and equipment may take longer to convert into cash.
• External (audited) nonprofit financial statements must follow Generally Accepted Accounting Principles (GAAP) standards.
• These metrics provide insights into areas like sustainability, program efficiency, and cost management.

Why is it Called a Statement of Financial Position and not a Balance Sheet?

Organizations must follow basic accounting practices when filing these statements and find ways to share these details in https://greatercollinwood.org/main-benefits-of-accounting-services-for-nonprofit-organizations/ ways donors can understand. Nonprofit financial reporting requirements frequently change, so nonprofit teams must stay up-to-date to maintain compliance. In recent years, governing bodies have implemented a few new accounting standards that impact both nonprofits and their auditors.

• It’s essential that you adhere strictly to accounting principles to make sure your financial information is accurate and compliant at all times.
• It not only ensures that organizations remain capable of fulfilling their financial obligations in the long term but also reassures donors and stakeholders of the nonprofit’s ongoing viability and financial health.
• While businesses are organized to generate profits, nonprofits are organized to address needs in society.
• Two key metrics commonly used in this analysis are the current ratio and working capital.
• By addressing these challenges with effective strategies, nonprofits can enhance their financial management practices, leading to improved transparency and accountability.

Understanding the needs of these stakeholders is vital for creating financial reports that communicate the organization’s financial story clearly and effectively. Revenue recognition is an accounting principle that prescribes how and when an organization earns revenue and presents that revenue in the financial statements. Revenue recognition for NPOs is different from revenue recognition for for-profit entities because NPOs have different sources of revenue and different goals for their financial activities.

• When analyzing this statement, make sure you consider the liquidity of your assets and how much cash and cash equivalents you have that can be used to pay off and short-term liabilities you have coming up.
• The Changes in Net Assets section of the Statement of Activities provides valuable information about the financial health and sustainability of a nonprofit organization.
• In nonprofit organizations, that total change gives insight into how much money is available to reinvest into the organization’s mission.
• The Statement of Activities is a key report that shows how your nonprofit is performing over a specific period (usually a year).
• These restrictions are often tied to a specific project, purpose, or time frame, and the funds cannot be used for any other purpose until the stipulations are met.
• This statement is issued by a nonprofit instead of the income statement issued by a for-profit business.

They provide valuable information on revenue, expenses, and net assets, which can guide strategic decision-making and resource allocation. Donors often look at these statements to evaluate the organization’s financial stability and effectiveness in achieving its mission. Overall, nonprofit financial statements play a critical role in promoting transparency, accountability, compliance, and informed decision-making within nonprofit organizations. In The Key Benefits of Accounting Services for Nonprofit Organizations this article, we have explored the sample financial statements for nonprofit organizations. We discussed the importance of financial transparency and accountability in the nonprofit sector.

Nonprofit Financial Statements: The Complete Guide with Examples

These restrictions are often tied to a specific project, purpose, or time frame, and the funds cannot be used for any other purpose until the stipulations are met. The objective is to present clear and easily readable reports, and not to make the reader work hard to figure it out. The information presented on the statement is also required when a nonprofit is applying for tax exemption with the Internal Revenue Service (IRS). Nonprofits that prioritize financial literacy and transparency are better positioned to achieve their goals and make a lasting impact in their communities.

• This simple equation, found by dividing your average monthly expenses by your total cash and cash equivalents, doesn’t consider asset restrictions like the LUNA calculation does.
• The Statement of Activities, also known as the Income Statement, outlines the organization’s revenue and expenses over a specific period.
• If your nonprofit operation becomes unviable, your remaining net assets will be distributed according to laws governing the nonprofit sector.
• The debt to equity ratio measures liquidity and shows how much debt versus revenue is being used.
• Nonprofits have a primary responsibility to the Internal Revenue Service (IRS) and their donors when filing and sharing financial statements.

But first, a quick note on nonprofit financial statements vs. internal financial reports…

Current assets are cash or assets you can reasonably expect to convert to currency within a year. Examples include bank balances, accounts receivable, pledged donations, investments, and prepaid expenses. This ratio measures your short-term financial health and ability to meet obligations. Finally, financing revenue comes from the earnings and interest earned on your financial activities and savings. Long-term liabilities are car loans and mortgages, whereas current liabilities cover accounts payable debt like salaries and immediate payments.