The Four Core Statements of Nonprofit Financial Reporting
Managing your nonprofit’s finances is no small task, but there are four standardized financial statements that provide clear benchmarks to help you make decisions. Without them, it’s nearly impossible to assess your organization’s performance or plan for the future. Not only are they important for your audit, but they are also they are powerful tools that illuminate how your resources are being used and what adjustments can drive greater impact.
In this blog, we’ll explore the four core financial statements every nonprofit needs: the Statement of Activities, Statement of Financial Position, Statement of Cash Flows, and Statement of Functional Expenses. Together, these documents reveal where your organization stands financially, how resources are being utilized, and what steps you can take to strengthen operations.
Statement of Activities
The Statement of Activities is similar to an income statement in the for-profit world and helps nonprofits track their financial performance over a specific period, typically a fiscal year. This document highlights how your organization generates revenue and allocates expenses, ultimately revealing the change in net assets.
Purpose
The Statement of Activities lets you evaluate whether your organization is earning more than it spends, providing a snapshot of your financial health. By breaking down revenue and expenses, this report shows how efficiently your organization is using resources to support your mission.
What’s Included
The Statement of Activities is divided into three primary sections:
- Revenue: This includes income from donations, grants, program fees, investment returns, and any other funding sources that fuel your nonprofit’s mission.
- Expenses: These are the costs incurred while delivering programs, covering administrative needs, and supporting fundraising efforts. Expenses are categorized to reflect their purpose within the organization.
- Change in Net Assets: By subtracting total expenses from total revenue, you calculate the change in net assets. This figure highlights whether your organization is operating at a surplus or deficit.
Why It’s Important
The Statement of Activities helps you assess operational efficiency and determine if your organization is operating within its means. It also provides transparency for stakeholders, donors, and board members, ensuring they understand how funds are utilized to advance your mission.
Statement of Financial Position
The Statement of Financial Position is the nonprofit equivalent of a balance sheet. While the Statement of Activities examines your revenue and expenses, this document focuses on your assets, liabilities, and net assets, offering a broader view of your organization’s financial status.
Purpose
The Statement of Financial Position provides insight into your nonprofit’s ability to fulfill financial obligations and sustain operations long-term. It’s a key tool for analyzing liquidity and planning for future resource allocation.
What’s Included
- Assets: These are resources owned or controlled by your organization, such as cash, receivables, investments, property, and equipment. Assets are categorized as current or noncurrent based on their liquidity.
- Liabilities: Liabilities include debts and obligations owed by your nonprofit, such as accounts payable, accrued expenses, and long-term loans.
- Net Assets: Net assets represent the difference between total assets and liabilities. These are broken down into two categories: Restricted Net Assets for funds earmarked by donors for specific purposes and Unrestricted Net Assets for resources that can be used at your discretion.
How It Differs from a For-Profit Balance Sheet
Unlike a for-profit balance sheet, the Statement of Financial Position emphasizes mission-driven resources rather than shareholder equity. Additionally, nonprofits distinguish between restricted and unrestricted funds, reflecting donor intentions.
Statement of Cash Flows
The Statement of Cash Flows tracks the movement of cash in and out of your organization during a given period, typically the fiscal year. This statement categorizes cash flow by activity type, helping you understand where funds come from and how they’re spent.
Purpose
The Statement of Cash Flows provides a clear picture of your nonprofit’s liquidity and ability to cover expenses. It highlights how cash is being managed, which is critical for planning and ensuring financial stability.
What’s Included
- Operating Activities: Cash inflows from donations, grants, and program revenue, as well as outflows for salaries, supplies, and other operational costs.
- Investing Activities: Transactions involving the acquisition or sale of long-term assets, such as property, equipment, or investments.
- Financing Activities: Cash flows from loans, endowments, or debt repayments that fund your nonprofit beyond its mission-related activities.
Why It’s Important
This statement helps identify cash flow trends, manage expenses, and plan for future initiatives. By monitoring cash availability, you can better align financial resources with your mission.
Statement of Functional Expenses
The Statement of Functional Expenses dives deeper into how your nonprofit spends its funds. Unlike other reports, this document breaks down expenses by both functional category (purpose) and natural category (type), providing granular insights into resource allocation.
Purpose
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.
What’s Included
- Program Expenses: Costs directly related to your nonprofit’s mission, such as materials, services, or program-specific salaries.
- Administrative Expenses: Day-to-day operational costs, including office supplies, rent, and general staff salaries.
- Fundraising Expenses: Costs associated with donor engagement, event hosting, and campaign marketing.
Why It’s Important
The Statement of Functional Expenses showcases your commitment to transparency by detailing how donor contributions are spent. It also aids in meeting audit requirements and informing stakeholders about cost allocation.
How the Four Financial Statements Work Together
While each financial statement provides unique insights, they complement one another to give nonprofits a full picture of their financial situation.
- The Statement of Activities reveals whether your nonprofit is operating at a surplus or deficit.
- The Statement of Financial Position highlights your overall financial standing, including assets and liabilities.
- The Statement of Cash Flows shows how effectively cash is managed to cover expenses.
- The Statement of Functional Expenses provides detailed visibility into spending across programs, administration, and fundraising.
Comparison of the Four Financial Statements
| Financial Statement | Purpose | What’s Included |
| Statement of Activities | Tracks revenue and expenses over time | Revenue, expenses, change in net assets |
| Statement of Financial Position | Provides a snapshot of financial status | Assets, liabilities, net assets |
| Statement of Cash Flows | Tracks cash inflows and outflows | Operating, investing, and financing activities |
| Statement of Functional Expenses | Details spending by category | Program, administrative, and fundraising expenses |
Together, these reports form the backbone of nonprofit financial management, ensuring informed decision-making and effective resource allocation.
Simplify Your Statement Creation with an Accounting System Built for Nonprofits
Creating these financial statements doesn’t have to be a daunting task. Blackbaud Financial Edge NXT simplifies nonprofit accounting, providing pre-built templates and intuitive tools to enhance reporting. With purpose-built features for nonprofits, you’ll save time, reduce errors, and gain deeper insights into your financial health.
Learn how the reporting options in Financial Edge NXT can save your team time and help you make more data-driven decisions.
Nonprofit Financial Statements FAQs
How frequently are these reports generated?
Most nonprofits generate these statements annually, though interim reports (monthly or quarterly) can be helpful for ongoing financial management.
Are these reports public or internal?
Reports like Form 990 are public, but internal versions may be shared only with key stakeholders, such as the board or donors.
Do these reports get audited?
Yes, nonprofits often undergo audits to ensure accuracy and compliance, especially when required by law or grant agreements.
Who is responsible for generating and reviewing these reports?
Typically, the finance team prepares these statements, while executive leadership and the board review them.
How do nonprofit and for-profit reports differ?
Nonprofits focus on mission-driven resources, distinguishing restricted and unrestricted funds, whereas for-profits prioritize profit generation and shareholder equity.
