Behind the scenes, healthy cash flow management keeps the mission alive. A nonprofit cash flow statement is a financial statement that shows the inflows and outflows of cash in a nonprofit organization over a specific period of time—usually a month, quarter, or year. The purpose of the cash flow statement is to provide information about the sources and uses of cash in the organization. This last report is where you will find the biggest difference between for-profit financial reports and nonprofit financial statements. Companies that exist purely to generate maximum profit for their owners use a Balance Sheet to show equity. The “Equity” section in a nonprofit’s Statement of Financial Position, though, is replaced with a “Net Assets” section.
Best Practices for Mastering Nonprofit Financial Statements
If you’re wondering how to track so many transactions with such precision, know that technology is on your side. Your nonprofit accounting software will help you automate the organization of revenue and expenses. Now, let’s dive into these financial statements we’ve been referencing so far.
After the audit
If you want to expand your organization, you’ll need to have enough cash on hand to cover your usual operating costs and take on additional expenses. The data in your balance sheet can help you figure out the total amount of cash and other liquid assets accounting services for nonprofit organizations you have available so you can determine whether your nonprofit has enough financial flexibility to grow. Budget vs. Actual is an internal report, not part of your audited financial statements.
The Database
Nonprofit organizations must prepare financial statements to show the financial position of the organization. The three main types of financial statements are the income statement, balance sheet, and cash flow statement. Hopefully, you now have a better understanding of each type of statement and how to prepare them. GAAP for nonprofits provides accounting definitions and standards specifically for nonprofit organizations. It ensures that nonprofit financial statements are presented transparently and consistently. The main difference is that nonprofit financial statements focus on the organization’s mission and stewardship of resources, while for-profit financial statements focus on generating profit for the owners.
What is GAAP for nonprofits?
Use Google to find at least three options (based on reviews https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ and portfolios) for CPAs or auditing firms that work with nonprofits. Audits must be performed by a CPA (Certified Public Accountant) or an auditing firm. Since you’ll have plenty of time to plan for most audits, you can take time to research and prepare. We’ve made the process easier for you by creating a free nonprofit audit checklist to keep handy for the right time or get started right away. Immediately after you receive the final auditor report, your nonprofit must begin making all suggested changes.
Michael Bergland, CPA
Below, you’ll learn about the value of each, what information to report, and how they work together to keep your nonprofit financially sound. A nonprofit’s expenses usually include all cash flowing out of the organization during the period. Plus costs incurred but not yet paid, like payroll that won’t be paid until next month or vendor invoices with 30-day terms. Nonprofit financial statements are not just records of income and expenses.
- In this article, we will explore the key components of nonprofit financial statements and understand their significance in assessing the financial performance and accountability of nonprofit organizations.
- In most accounting systems, expenditures are typically recorded as natural expenses, which are based on the nature of the payment.
- Beyond the IRS requirement for tax-exempt organizations, efficient reporting opens the door to stakeholder trust and strategic decision-making.
- This level of service could be appropriate for a nonprofit who has an external reporting requirement.
- The first and most apparent liabilities are your organization’s operational costs.
How to Review a Statement of Financial Position:
Nonprofit revenue is often classified based on restrictions set by donors, falling into two primary categories. Understanding the needs of these stakeholders is vital for creating financial reports that communicate the organization’s financial story clearly and effectively. A cloud financial management system with multi-entity and multi-currency global consolidation capability can be accessed from anywhere, so it is easy to have entities use the same accounting system.
What insights can nonprofits get from a balance sheet?
- If you’re a nonprofit organization in need of expert financial guidance and support, don’t hesitate to take action today.
- If a grant-maker or a donor gives you money that is dedicated for specific programs, or that you need to use by a specific date, it’s still an asset.
- This statement provides insights into whether or not the nonprofit is generating more income than it is spending.
- Accurate expense allocation and functional reporting are critical for understanding how resources are used to achieve organizational goals.
- Since you’ll have plenty of time to plan for most audits, you can take time to research and prepare.
- Nonprofit accounting practices often involve using cash basis accounting.
The best way to determine this for each option is by asking for a request for proposal (RFP). Kim continued on a FlexPath for several years before transitioning to a ClassicPath and taking on leadership responsibilities in 2020. She appreciates the flexibility and support Jones & Roth provides her as her life changes. Don’t forget to add contact details for someone who can answer questions about the report. Letting people know you’re on top of compliance shows you’re committed to running things properly and transparently.