Financial statements report on your nonprofit’s financial status. They provide a “snapshot” of your organisation’s financial health for a specific time period. Ideally, the financial statements that you produce for your nonprofit will make it easier for your board and other stakeholders to make wiser, more informed, decisions.

The following information can help you have a better understanding of your nonprofit’s financial statements and their purpose.

Main Nonprofit Financial Statements

There are four main financial statements that the treasurer creates for their nonprofit: The Statement of Financial Position, the Statement of Activities, the Statement of Changes in Net Assets and Statement of Cash Flow.

These statements should be prepared and presented to the board each year at the annual general meeting (AGM). Interim reports for each of these statements are created and presented to the board as part of the treasurer’s report throughout the year. Typically, this report and accompanying statements are presented at the regular monthly board meeting. These interim reports can help your board know how well it is sticking to its budget, and if it is meeting its funding targets in specific areas.

Will Your Nonprofit be Required to Lodge Your Financial Statements?

If your nonprofit is a registered charity and grosses more than $250,000 each year from all its combined activities, copies of these statements must also be lodged with the ACNC, along with an Annual Information Statement.

Large sized charities will need to have their statements audited as well. Medium sized ones can choose between a review, or actual audit of their financial statements.

Smaller-sized charities are only required to lodge an Annual Information Statement with the ACNC. They are not required to lodge their financial statements with the ACNC and are not required to have their financial statements reviewed or audited. They may, however, choose to have their financial statements either audited or reviewed as part of their risk-management plan.

The Statement of Financial Position

The statement of financial position has been compared to the balance sheet produced by for-profit companies. Nonprofit organisations, however, are not “owned” by shareholders, but operate for the public good. This statement, along with the budget, are typically submitted with one’s funding proposal.

Rather than providing a picture of the owner’s equity, or the retained earnings for a group of owners, as a balance sheet would, the statement of financial position is a reflection of the net assets that the NFP has on hand on a specific date.

On this statement, assets are grouped and reported by category, or class. Your nonprofit’s liabilities are subtracted from your assets to arrive at your organisation’s net assets.

Rather than being available for distribution to stockholders, as would happen in a for-profit corporation, net assets can only be used to support the nonprofit’s mission or retained to be used to advance the mission later.

The Statement of Activities

This financial statement serves a similar purpose to that of the Income Statement produced by for-profit businesses. It provides details about the revenues received by your nonprofit, as well as the expenses incurred by your organisation. It also lets your board and other stakeholders know how well your nonprofit is operating over time.

When your nonprofit’s revenues exceed expenses, an excess is said to have occurred. When expenses top revenues, a shortfall, also known as a deficit, has occurred. A deficit will always result in a decrease to your nonprofit’s net asset balance.

When reporting your revenues, they are grouped and categorized based on the class of the net asset that is affected. Two broad categories are net assets with donor restrictions, and net assets without donor restrictions.

Revenues and expenses are also broken down by fund, and its specific functional area. General, Fundraising and Programs are common types of areas found within specific funds.

The Statement of Changes to Net Assets

The statement is sometimes known as a Statement of Changes in Funds. It provides more details about your nonprofit’s sources of income, how that income is used, and how these actions affect each of your net asset classes. It provides a helpful way for stakeholders to evaluate your nonprofit’s capacity to serve, and whether your nonprofit and its officers and managers have fulfilled their role to act as good stewards of public funds and to act in accordance with your nonprofit’s mission statement or statement of purpose.

On this statement, income, or revenue, is listed as a line item by the type that is received. It is also summarised by the specific functional area.

This lets stakeholders know whether the incoming monies were received from individual donations, grants, derived from activities such as program revenue, or were earned revenue.

Income is further grouped into its net asset class, that is whether it was restricted, either temporarily or permanently, or is unrestricted.  Changes in Net Assets are then reported by Fund.

Statement of Cash Flow

The statement of cash flow reports changes in cash and cash equivalents. Whether an organisation operates for-profit, or is a nonprofit entity, the goal is to manage cash flow so that there is always enough cash on hand to pay current expenses.

These changes are categorised and reported in three sections and are net cash from operating activities, net cash from financing activities and net cash from investing activities.

Want to Learn More About Nonprofit Financial Statements?

CPA Australia has produced a useful guide that can help board members and other NFP stakeholders learn more about the importance of specific financial statements: “A Guide to Understanding the Financial Reports of Not-for-Profit Entities.”

It provides an overview of the main types of financial statements, along with filing requirements for different classifications of nonprofits, and tips on how to interpret the findings found in each specific report.