A nonprofit’s statement of activities is very similar to a for-profit’s income statement, reformatted to highlight some of the differences between the two sectors.
The biggest difference is the statement being organized into 3 categories – unrestricted, temporarily restricted, and permanently restricted activity, then a total for the period in question. When the new financial statement requirements take effect, this will be consolidated into 2 categories – activity with donor restrictions, and without donor restrictions. The 2-category form will follow the same principles as the current 3 categories in terms of how activity is reported in each column. You can see an example on pages 1 and 4 of this set of financial statements from Easter Seals.
Revenue is reported across all 3 categories, depending on the restrictions, or lack thereof, that donors put on the money. Expenses, on the other hand, are shown as all coming out of unrestricted funding. When money is spent for a grant restricted to a specific purpose, or as time restrictions are met, this is shown as a revenue item called Net Assets Released from Restrictions. On this line, show a negative amount under temporarily and/or permanently restricted net assets, and a positive amount under unrestricted funds. Here’s an example:
- $10,000 was spent from a purpose-restricted grant
- time restrictions expired on a $100,000 grant
- $50,000 of endowment income was used
- Under Net Assets Released from Restrictions, you would show $160,000 under unrestricted, negative $110,000 under temporarily restricted, and negative $50,000 under permanently restricted
At the bottom of the statement, you show the change in net assets, as well as the beginning and ending balances, broken out by the type of restrictions, and the total.
The report described to this point is how it would be shown in a set of financial statements for an audit, and to be used by people outside the organization. If you’re using the report internally to your organization, you’ll most likely want to change the format to include additional information so you can evaluate financial performance. Common details to include are:
- Monthly, quarterly, and/or year-to-date actuals
- Prior year actuals for the same time period
- Budget for the year, and/or budget-to-date
- Variances between the budget and actuals, as a dollar amount and/or as a percentage of the budget
- Year-end forecast, and variance between this and the full-year budget
If you have multiple programs or departments, you’ll want to show the financial performance of each of them, plus the overall total. For revenue, you may want to break out the type (e.g. donations, grants, contracts for service) and the source (e.g. individual and corporate donors, foundations, governments, events). If you put on any events, such as a fundraiser, that could merit it’s own section of the financial report to show the gross and net proceeds.
The statement of activities is a historical report, showing what happened in a past time period, but it also has value looking to the future. If one month or quarter had poor financial performance, you have an opportunity to review what happened and address weaknesses. If there are large variances between the budget and actuals, this warrants attention from the finance committee, and potentially the full board of directors.