Nonprofit Financial Statements Explained: What Every Executive Should Know

With so many pressing causes worth their attention, donors want to feel confident that your nonprofit will put their funds to good use. By sharing your financial statements, you can let them see for themselves just how effectively you’re working to accomplish your mission. Combining the balance sheet analysis with other financial statements and qualitative information (like program reports) will provide a more complete picture.

Want to see a live breakdown of real-life nonprofit financial statements

Nonprofit financial statements are important because they provide transparency and accountability to stakeholders, including donors, grantors, and the public. They help assess the financial health of the organization and ensure proper management of resources. In addition to these statements, nonprofit financial reporting may also include notes to the financial statements. These notes provide additional information and explanations about specific items in the financial statements, significant accounting policies, and other disclosures. It’s important to note that nonprofit financial statements are not just for internal use. They are also used for compliance purposes, as regulatory bodies require nonprofits to submit these statements regularly.

The Role of Financial Reporting in Nonprofits

• By understanding the Liabilities Section, stakeholders can assess the organization’s ability to meet its financial obligations.
• They are essential for tracking financial health, ensuring compliance, and making informed decisions about resource allocation and organizational growth.
• Nonprofit accounting uses specific rules and procedures to track how funds are being used and thus keep their leadership accountable to its donors and contributors.
• This provides a clear overview of the organization’s financial obligations and helps stakeholders make informed decisions.
• In summary, the net assets section of nonprofit financial statements provides valuable information about the organization’s financial health and the availability of funds.
• Demonstrating that a significant portion of resources is funneled directly into program services reinforces the organization’s effectiveness and integrity in the eyes of donors, funders, and the public.

Set guidelines for creating and distributing financial statements with our Nonprofit Financial Reporting Policy Template. They’re calculated by subtracting your total liabilities from your total assets, which should be listed in the other two sections of your balance https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ sheet. At Altruic Advisors, our nonprofit accountants have helped more than 500 organizations across the country with outsourced accounting, Form 990 preparation, and nonprofit audit services. Nonprofit leaders wear many hats – fundraiser, program manager, team coordinator, administrator…the list goes on. Whether you’re a director, volunteer, or board member, you probably didn’t get into nonprofit work for the pleasure of reconciling bank accounts.

The 4 essential nonprofit financial statements

This approach is crucial for these organizations, as it aligns revenue recognition with related expenses, offering a true reflection of financial health and operational effectiveness within a reporting period. Understanding these differences is crucial for anyone involved in nonprofit financial management. This statement is a great way to stay informed about how cash resources are being used during the fiscal year. When you’re reviewing your cash flow statement, look at the organization’s spending to make sure it aligns with the mission and goals.

When you mail out a book, the postage on that shipment is considered a program expense because it is directly related to your mission. But when you mail a fundraising appeal to your donor list, postage suddenly becomes a fundraising expense instead. And when you mail a check for your electric bill, it’s considered a general/administrative expense.