Statement of Financial Position: Reading a Nonprofit Balance Sheet

Understanding the nonprofit balance sheet is essential for stakeholders to assess financial health, liquidity, and the organization’s ability to fulfill its mission The Key Benefits of Accounting Services for Nonprofit Organizations effectively. The net assets section of the Statement of Financial Position is an important part of nonprofit financial statements. It provides a clear picture of the organization’s financial health and sustainability. Understanding unrestricted net assets is crucial for nonprofits as it helps determine the availability of funds for various purposes.

Great Examples of Nonprofit Financial Statements

The surplus/deficit ascertained from Income and Expenditure A/c is added/deducted from the Capital Fund as the case may be. Other items added to Capital Fund are the capitalized events or transactions like Legacies, Entrance fees, and Membership fees. Some funds may be created other than Capital Fund, like Sports Fund, Building Fund, etc., to meet the specific requirement or the requirements of donors/contributors. It’s important to note that investors should be careful not to confuse earnings/profits with cash flow. It’s possible for a firm to operate profitably without generating cash flow or to generate cash flow without producing profits. We have noticed in working with clients that people often relate to accounting the same way they relate to their checkbook.

Assessing Financial Health of a Nonprofit

Shareholders’ equity is equal to a firm’s total assets minus its total liabilities. It is one of the most common financial metrics employed by analysts to determine the financial health of a company. The balance sheet and the profit and loss (P&L) statements are regularly issued by companies. Such statements provide an ongoing record of a company’s financial condition and are used by creditors, market analysts, and investors to evaluate a company’s financial soundness and growth potential. Ideally, nonprofits should prepare internal financial statements monthly or quarterly for management purposes.

What Is a Nonprofit Balance Sheet? Breaking Down This Report

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). Each of these statements is critical to gain different insights into your organization’s financial situation and promote accountability with supporters, stakeholders, and the government. If you’re looking https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ for an easier way to get accurate and on-time financial reports, consider outsourcing your nonprofit bookkeeping and accounting to The Charity CFO.

• The balance sheet gives investors and creditors a snapshot of how effectively a company’s management uses its resources.
• The objective is to present clear and easily readable reports, and not to make the reader work hard to figure it out.
• Take our 2-minute survey to find out if outsourced accounting and bookkeeping is a good fit for your organization.
• The funds have been assigned for a particular purpose or for a certain period.
• The liabilities are subtracted from the assets to give the organization’s net assets (what the organization is worth) as of a certain date.
• You should consult your own legal, tax or accounting advisors before engaging in any transaction.
• Once reviewed as a group, these financial statements should then be compared with those of other companies in the industry to obtain performance benchmarks and understand any potential market-wide trends.

It’s also the mandatory method for nonprofits that must adhere to Generally Accepted Accounting Principles (GAAP), such as those dependent on federal grants or those undergoing an audit. The cash basis method records transactions when money changes hands, while the accrual method recognizes transactions when they are confirmed or incurred. Take our 2-minute survey to find out if outsourced accounting and bookkeeping is a good fit for your organization. Your team needs to spend countless hours entering receipts, invoicing clients, running payroll, and reconciling your books BEFORE you can get the reports you need to run your business the right way. A certified public accountant (CPA) can help out at various stages during the growth of your small business.

• Since nonprofits operate for the purpose of fulfilling their mission instead of distributing profits, financial reporting can get lost in the shuffle.
• On the Statement of Financial Position, your assets break down into current assets, fixed assets, and other assets.
• And secondly, if you fail to file a 990 for 3 consecutive years, you’ll automatically lose your tax-exempt status.
• Compare multiple balance sheets to consider trends over time and identify the norm for your nonprofit.
• These are funds that have specific restrictions placed on them by donors or governing bodies, and cannot be used for general operating expenses.
• It is one of the most common financial metrics employed by analysts to determine the financial health of a company.