Understanding Not-for-Profit Financial Statements

May 24 2018 | by Krista M. Gardner, CPA

Your Organization’s financial statements are the basis of most decisions related to the programs and services delivered under your mission. It is essential that those involved in making organizational decisions and assessing program results have a clear understanding of what your financial statements mean and the story that is being told by those statements.

Financial statements themselves can be challenging to follow and understand if they aren’t a part of your day-to-day life, and this is particularly true in the not-for-profit world. Not-for-profit financial statements have their own rules to follow and may seem complicated to employees or board members with limited financial exposure or those with little experience in the non-profit accounting environment. My goal is to help those in your organization feel less intimidated by your financial statements and more confident in their understanding of the financial well-being of your Organization.

Statement of Financial Position (Balance Sheet)

Your Organization’s Statement of Financial Position, or what you may know as the Balance Sheet, provides information at a specific point in time, whether at the end of your fiscal year (December 31 or June 30th) or at the end of each month. The Statement of Financial Position includes significant financial information about your organization’s assets, liabilities, and net assets.

Key-Term Definitions

Assets – What your organization owns; Cash and Investments

Liabilities – What your organization owes to others; or what your organization holds on behalf of others

Net Assets – Equal to Assets less Liabilities; classified as unrestricted, temporarily restricted or permanently restricted.

Statement of Activities (Income Statement)

Your Organization’s Statement of Activities, or what is referred to in the for-profit world as the Income Statement, is where you track your Organization’s revenues and expenses. Revenues and expenses are often the main drivers of an organization and are what your decision makers will spend a lot of time on analyzing, whether it’s from year to year or comparing budgeted amounts to actual results.

At the end of the day, your Organization’s mission is most important, so giving your decision makers the tools to assess your financial status is crucial in being a successful organization that is fiscally responsible and prepared for the future.

I encourage you to share this upcoming webinar series with your staff, committee members, board members and other volunteers that may be a part of your Organization’s decision-making process and may benefit from learning the basics of your financial statements.

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