The 501(c)(3) rules are important for nonprofits to understand when reading and interpreting their financial statements. These rules require a nonprofit organization to be recognized as tax exempt under the Internal Revenue Code, and they provide guidelines on how a nonprofit should conduct its operations. Additionally, state governments may have their own requirements regarding taxes or other filings that must be met by nonprofits in order for them to remain in compliance. Understanding these regulations will help nonprofits ensure their financial health and abide by necessary regulations when preparing and presenting their financials.

Preparation of Financial Statements for Nonprofits

Simply, it reports your organization’s revenue and expenses during a specific period and the difference between them. Your financial statements for nonprofits nonprofit must also include your balance sheet with a snapshot of your organization’s finances at the beginning and end of the year when filing annual taxes with Form 990. Understanding these differences is crucial for anyone involved in nonprofit financial management. This statement is a great way to stay informed about how cash resources are being used during the fiscal year. When you’re reviewing your cash flow statement, look at the organization’s spending to make sure it aligns with the mission and goals. This allocation is not just a financial reporting requirement; it serves as a transparent indicator of how the nonprofit prioritizes mission-related activities over administrative and fundraising costs.

Restricted vs. Non-Restricted Net Assets

• Categorizing expenses by function enables transparency and helps stakeholders understand how efficiently the organization allocates resources.
• You can see what is owed, what you owe, and how much cash you have on hand.
• Spreading awareness is the only way to make an impact in any large measure so share what you know about these financial statements with others.
• Misinterpreting these liabilities can lead to an inaccurate assessment of your immediate financial obligations.
• The activity reported on this statement covers a specified period of time, usually one month or one year.

Insurance Expense, Wages Expense, Advertising Expense, Interest Expense are expenses matched with the period of time in the heading of the income statement. Under the accrual basis of accounting, the matching is NOT based on the date that the expenses are paid. The U.S. Internal Revenue Service (IRS) requires some tax-exempt nonprofit organizations to file Form 990 (some can file Form 990-EZ) each year. (However, churches and some other nonprofit organizations are not required to file.) The title of Form 990 is Return of Organization Exempt From Income Tax. The number of accounts in a nonprofit’s general ledger could range from 30 to 1,000 or more.

Key differences between for-profit and nonprofit balance sheets

By isolating the portion that is easily accessible, the LUNA figure reflects your ability to meet short-term obligations and operational costs, such as payroll, rent, and program expenses. Assets are what your organization owns, liabilities are what it owes, and net assets represent the difference between the two (essentially, your organization’s equity). It’s an contra asset account absolute monetary figure showing your financial capacity to strengthen current programs, invest in new initiatives, or apply the funds to better operational efficiency.

The assets and liabilities listed on a nonprofit’s Statement of Financial Position are listed as of a certain date, typically the end of the prior month or year-end. Nonprofit financial statements are a set of reports that demonstrate how well a nonprofit is doing financially. They show how much money the organization has, how it spends its money, and what its assets and liabilities are. A compilation involves the preparation of financial statements by a CPA based on information provided by the nonprofit organization’s management. Unlike reviews, compilations do not include assurance or verification of the accuracy of the financial statements. Effective financial management is the backbone of a thriving nonprofit, ensuring stability, transparency, and informed decision-making.

The experienced team at Jitasa has compiled, distributed, and analyzed financial statements for organizations of all sizes. Plus, Jitasa works exclusively with nonprofits, giving you access to the expertise necessary to correctly craft these reports and glean applicable insights from them. This is similar to a for-profit income statement, with elements tailored to suit nonprofit accounting principles. The goal is Certified Bookkeeper to see how you’re generating revenue, spending funds, and operating to maintain a healthy net asset ratio. Form 990 is a required document that all tax-exempt organizations must file with the IRS annually.

Tracking Restricted Funds

Organizations need clear policies for valuing different in-kind gifts, from simple supply donations to complex assets like real estate. Proper documentation of the valuation method is crucial for audit and tax reporting purposes. While many start with basic tools, growing nonprofits often need robust accounting software for nonprofit organizations to handle complex funding streams effectively. Every source requires a tailored accounting strategy to align with the organization’s comprehensive financial framework. A Statement of Activities will help nonprofits file Form 990 with the IRS and provide needed transparency to donors, foundations, and corporations. Websites like GuideStar will also use this report to share how your organization uses revenue.