New to nonprofit accounting? No problem!
Our goal for this course is to provide you with the backbone techniques and principles to start tracking your nonprofit’s or church’s financials while keeping them as actionable and succinct as possible. This lesson is part of our Nonprofit Accounting Basics series. Sign up here to get the full series email.
In this lesson, we are going to learn about the essential nonprofit financial statements, a.k.a. reports your organization needs to operate. Pretty much every type of organization needs two reports, but nonprofits and churches actually need a third report.
Have three minutes to watch the video lesson?
Prefer the skim-able version? Keep reading…
1. Balance Sheet (Statement of Financial Position)
The balance sheet, known as the statement of financial position for nonprofits, illustrates an accounting equation and shows a snapshot of your organization’s financial health. It can also show you the current balance of each of your funds if you have been doing true fund accounting. The accounting equation is:
Assets = Liability + Equity
An easier way to illustrate this is by saying the things you own, minus what you owe, equal your overall worth. When viewing this report, it will quickly show you if your organization owes more than it owns.
2. Income Statement (Statement of Activities)
The income statement, known as the statement of activities for nonprofits, shows this:
Income – Expense = Net Income (Increase in Net Assets)
What this means is the money you receive, minus the money you spend, is called your net income(increase in net assets for a nonprofit). When viewing this report, it will quickly show whether your organization is making more than it’s spending.
3. Statement of functional expenses.
The statement of functional expenses is where fund accounting really begins to shine. This report shows not only how much money you’ve spent, but breaks each expense down by fund and category. For instance, it would show the total administrative costs across your entire organization, and how much each fund has spent using these accounts. Assuming you have created an effective chart of accounts and recorded everything properly, these reports should be very simple to create.
Want to see more? Sign up here and we will send you the entire course through email. We’ll delve deeper into the subject! We’ll talk on how to set up your chart of accounts, what to manage in your accounting on a day to day basis, and so much more!