If you’re thinking of starting a nonprofit, or you’re trying to learn more about how to run your nonprofit from an accounting standpoint, then it’s important you understand and implement the three reports essential to managing your nonprofit financials. For-profit businesses utilize these reports to understand whether or not they’re profitable. However, many people don’t realize that nonprofits need them as well.
Even though for-profits and nonprofits both use these reports, some of the reports go by a different name in the nonprofit-sphere.
Traditional businesses also call this report a Budget-To-Actual. As you might’ve guessed, it’s to help with budgeting.
Most people underestimate how important budgeting can be. They see it as something that might help manage their money, and certainly not as something they have to implement. Your budget-to-actual will match your expense and income accounts, and show what you designated for your budget. It will show how well close you came to meeting that goal. It should also be done monthly or quarterly.
Click here to learn how to create budget reports through Aplos’s accounting platform.
Statement of Financial Position
This is the second of your reports on nonprofit financials. In the business world, this report is called a Balance Sheet.
Your statement of financial position will show what you have up to the current date, and will show the assets and liabilities your nonprofit has, as well as the difference in their totals. Anyone who’s taken an accounting course has heard of the equation ‘Assets = Liabilities + Stockholders’ Equity’; this equation applies to the statement of financial position as well. However, Stockholders’ Equity will be replaced by Net Assets. So the equation will look like: Assets = Liabilities + Net Assets.
Nonprofits mostly use their Statement of Financial Position as a reference guide for other reports.
Statement Of Activities
Businesses call this an Income Statement. Nonprofits use this report more often than the balance sheet. The formula on this report is Income – Expense = Net Income (Increase in Net Assets).
As you might be able to tell, subtracting your expenses from your income results in your net assets. This report shows if your organization is making more than it’s spending. And as Nonprofit Accounting Basic$ explains: “The report reflects the changes to an organization’s net assets resulting from income and expenses that occur during the current fiscal year.”
More On Nonprofit Financials
We hope you found this quick run-through on nonprofit reports helpful. Still interested in learning more on nonprofit accounting? Then check out our Ultimate Guide To Nonprofit Accounting.