This includes segregating duties, conducting regular audits, and maintaining proper documentation. By having strong internal controls, nonprofit organizations can minimize the risk of fraud and errors in their financial statements. The Liabilities Section of the Statement of Financial Position provides important information about the financial obligations of a nonprofit organization. By understanding the Liabilities Section, stakeholders can assess the organization’s ability to meet its financial obligations.

Professional Advice and Consulting Services for Personalized Guidance

Further, providing a single lump sum balance for net assets without donor restrictions often does not tell the full story. Another thing nonprofits need to keep in mind is that they do have to file a business tax return even though they are not liable for federal income taxes. Nonprofits may need to pay other types of taxes including property taxes or sales taxes. That’s because it cannot be used when a nonprofit has received more than $25 million in all of its gross receipts over the three previous years. Those working in the non-profit sector need to understand their unique accounting responsibilities.

The 4 Major Nonprofit Financial Statements

One type of financial statement that gives readers a detailed view of how the organization is doing is the balance sheet. It’s important to understand the difference between these two categories and properly classify them in your statement of financial position. This ensures that you are using restricted funds for their intended purpose and maintaining transparency with your donors. Now that we have a basic understanding of the components of https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ a statement of financial position, let’s dive into the cheat sheet for nonprofit organizations.

Why Do Nonprofits Need a Balance Sheet?

Compiling and analyzing financial reports can leave an organization leader feeling overwhelmed. Don’t hesitate to reach out to JFW Accounting Services for an expert take on your entity’s finances. Green Future has been operating for over a decade with the mission to promote sustainable environmental practices through education, advocacy, and community engagement. In recent years, the organization expanded its operations and took on several high-profile projects, funded primarily through grants and major donor contributions.

For nonprofits, the importance of this document cannot be overstated, as it plays a vital role in securing funding, grants, and donor trust. It demonstrates the organization’s capacity for handling its resources responsibly, showcasing stability and aiding in strategic planning and management. The statement of financial position is an indispensable financial document for nonprofit organizations, providing a comprehensive snapshot of their financial health at a specific point in time. It details the organization’s assets, liabilities, and net assets, offering vital insights into its financial stability, liquidity, and overall capacity to sustain its mission.

Examples of these nonprofits include social organizations, chambers of commerce, college fraternities and sororities, amateur sports clubs, employee organizations, and more. From churches to youth organizations to the local chambers of commerce, nonprofit organizations make our communities more livable places. Unlike for-profit businesses that exist to generate profits for their owners, nonprofit organizations exist to pursue missions that address the needs of society. Nonprofit organizations serve in a variety of sectors, such as religious, education, health, social services, commerce, amateur sports clubs, and the arts.

Key Takeaways: Statement Of Financial Position

• Regular monitoring of these ratios can help in early detection of potential financial issues, allowing for timely adjustments in financial strategy or operations.
• One of the most important financial statements for a nonprofit organization is the statement of financial position.
• If you or your board come from the for-profit world, it’s okay to call it a Balance Sheet among your team.
• It is important for nonprofit organizations to carefully manage their financing activities to ensure financial stability and sustainability.
• By breaking down revenue and expenses, this report shows how efficiently your organization is using resources to support your mission.

But wait, why is it often referred to as a ‘balance sheet’ and how does it differ from a for-profit one? In this article, our goal is to provide you with details about the statement of financial position and how you can use it to improve the financial standing of your organization. Among the list of important finance documents your nonprofit organization has to create and use, the statement of financial position is one of the most important. Without a customized software solution, many nonprofits download their accounting data to Excel to compile the information in a usable format. However, this can be extremely time-consuming for your nonprofit’s team and take energy away from focusing on your mission. If you’re looking for an easier way to get accurate and on-time financial reports, consider outsourcing your nonprofit bookkeeping and accounting to The Charity CFO.

The Role of Financial Reporting in Nonprofits

If there is uncertainty as to when an expense is matched or is used up, the amount spent should be reported as an expense in the current period. In order to accurately report the amount in each of these subgroups, it may be necessary to allocate some management and general salaries to fundraising based on the time spent by employees performing fundraising activities. For example, a management employee might be spending 30% of her time in fundraising activities but her entire salary has been recorded as management and general expenses. Even though you don’t have to pay federal taxes, almost all nonprofit organizations (the few exceptions are listed here) must file an IRS Form 990 each year. It’s probably the most practical financial statement a nonprofit Executive Director or CEO has for making intelligent decisions for their organization.