Creating a comprehensive set of financial statements for a non-profit organization involves several key line items. Here’s an outline for each of the three primary financial statements: the Statement of Financial Position, the Statement of Activities, and the Statement of Cash Flows.
Check out industry-specific financial model templates.
1. Statement of Financial Position (Balance Sheet)
This statement reflects the organization's assets, liabilities, and net assets.
Assets:
Current Assets:
- Cash and Cash Equivalents
- Accounts Receivable (Grants, Pledges, etc.)
- Prepaid Expenses
- Investments (short-term)
Non-Current Assets:
- Property, Plant, and Equipment (net of depreciation)
- Long-Term Investments
- Endowments (if applicable)
- Other Assets (e.g., intellectual property, restricted funds)
Liabilities:
Current Liabilities:
- Accounts Payable
- Accrued Expenses
- Deferred Revenue (for unearned grants or donations)
- Short-Term Debt
Non-Current Liabilities:
- Long-Term Debt
- Deferred Revenue (long-term)
Net Assets:
- Without Donor Restrictions (Unrestricted)
- With Donor Restrictions (Restricted):
- Temporarily Restricted (time or purpose restrictions)
- Permanently Restricted (endowment funds)
2. Statement of Activities (Income Statement)
This statement details the organization's revenue and expenses over a specific period, often categorized by restrictions.
Revenues and Gains:
- Contributions and Donations:
- Unrestricted
- Temporarily Restricted
- Permanently Restricted
Grants and Contracts:
- Government
- Private Foundations
Program Service Revenue:
- Fees for Services
- Membership Dues
Investment Income:
- Interest and Dividends
- Realized and Unrealized Gains/Losses
Other Income:
- Fundraising Events
- Sales of Goods and Services
Expenses:
Program Expenses:
- Direct costs associated with programs or services
Supporting Services Expenses:
- Management and General
- Fundraising
Change in Net Assets:
- Net Assets Released from Restrictions:
- Satisfaction of Program Restrictions
- Satisfaction of Equipment Acquisition Restrictions
- Expiration of Time Restrictions
3. Statement of Cash Flows
This statement shows how cash is generated and used during the fiscal period.
Cash Flows from Operating Activities:
- Cash Received from Contributions and Grants
- Cash Paid for Program Services
- Cash Paid for Operating Expenses
- Interest and Dividends Received
Cash Flows from Investing Activities:
- Purchase of Property and Equipment
- Proceeds from Sale of Investments
- Purchase of Investments
Cash Flows from Financing Activities:
- Proceeds from Loans
- Repayments of Loans
- Endowment Contributions Received
4. Notes to the Financial Statements
These notes provide additional detail and context for the figures in the financial statements, including:
- Accounting Policies
- Details on Restricted Assets
- Endowment Funds
- Commitments and Contingencies
- Subsequent Events
These line items are common in non-profit financial statements, though specific items may vary depending on the organization's size, sector, and activities.
You may also be interested in this financial statement generator.
Financial Statement Differences in a Non-profit vs. For-profit Business
The financial statements of non-profit and for-profit organizations differ primarily in their objectives, terminology, and presentation. Here are some of the main differences:
1. Purpose and Focus
Non-Profit Organizations:
- Focus on accountability and stewardship of resources.
- Aim to fulfill a mission or provide public benefits, rather than generating profit.
For-Profit Organizations:
- Focus on profitability and return on investment for shareholders.
- Aim to maximize profits and increase shareholder value.
2. Terminology
Net Assets vs. Shareholders' Equity:
- Non-profits use "net assets" to represent the residual interest in the assets of the organization after liabilities are deducted. This is further classified into "without donor restrictions" and "with donor restrictions."
- For-profits use "shareholders' equity" or "owners' equity," which includes common stock, retained earnings, and other components related to ownership interests.
Revenue and Gains:
- Non-profits use terms like "contributions," "grants," and "donations" to describe their primary sources of income.
- For-profits refer to "sales," "revenue," and "income" from goods and services sold.
3. Types of Financial Statements
Statement of Financial Position vs. Balance Sheet:
- The equivalent of a for-profit balance sheet in non-profits is the "Statement of Financial Position." It includes assets, liabilities, and net assets rather than assets, liabilities, and shareholders' equity.
Statement of Activities vs. Income Statement:
- Non-profits have a "Statement of Activities," which shows revenues, expenses, and changes in net assets. It may differentiate between unrestricted, temporarily restricted, and permanently restricted funds.
- For-profits use an "Income Statement" that focuses on revenues, expenses, and net income or loss over a period.
Statement of Cash Flows:
- Both types of organizations use a "Statement of Cash Flows," but the categories and emphasis may differ. Non-profits focus on operating, investing, and financing activities, with attention to donor restrictions.
4. Donor Restrictions and Contributions
Non-Profit Organizations:
- Non-profits must track and report donor restrictions, which can be temporarily or permanently restricted. These restrictions affect how and when the funds can be used.
- Contributions can be classified as with or without donor restrictions, influencing how they appear in the financial statements.
For-Profit Organizations:
For-profits do not have to deal with donor restrictions. Instead, they focus on revenue from sales, services, and other income-generating activities.
5. Reporting Requirements and Regulations
Non-Profit Organizations:
- Non-profits often have additional reporting requirements to demonstrate accountability to donors, grantors, and regulatory bodies.
- They may need to produce a "Statement of Functional Expenses," which breaks down expenses by program services, management, and fundraising.
For-Profit Organizations:
- For-profits focus on financial performance and may be required to comply with regulations like Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS), depending on the jurisdiction.
6. Use of Surplus
Non-Profit Organizations:
- Any surplus (excess of revenues over expenses) is reinvested into the organization to further its mission.
For-Profit Organizations:
- Profits are distributed to owners or shareholders in the form of dividends or retained for reinvestment in the business.
Article found in Accounting and Finance.
