Nonprofits separate resources into various accounts, which identify where those resources come from and their usage. Furthermore, WWF adds graphs that illustrate the nonprofit’s operating revenue and program spending growth over the past decade. By analyzing the expense breakdown, stakeholders can gain insights into how the organization allocates its resources and make informed decisions regarding funding and budgeting.

Why Do Nonprofits Need Financial Statements?

Remember, you must take an extra step to export all your data into spreadsheets to generate financials. As a nonprofit, your biggest challenge is likely to be managing your accounting cash flow. More importantly, cash flow is necessary to pay bills and other expenses. The Cash Flow Statement includes total cash received minus total cash spent.

• The federal government is not the only one that requires regular audits by nonprofits.
• Four key financial statements are essential for nonprofits to master for strong decision-making.
• When attending in-person isn’t possible, donors and supporters may appreciate a virtual event.
• Read through it and see if you can draw any conclusions about Acme Nonprofit’s current financial status.
• In contrast, for-profit businesses use a balance sheet which reflects the assets the corporation owns.

Statement of Cash Flows

You’ll also track changes to the net assets you reported in your Statement of Financial Position. Your financial statements serve as a way to establish transparency among your donors. By showing the public exactly how donation dollars are being used and when you’re involving them on a much deeper level. You may wonder why nonprofits have a designated set of financial statements and what other purposes they serve.

The Statement of Functional Expenses

Another scenario that could necessitate a review is a donor/grantor requirement for the grantee to provide annual https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ reviewed financial statements. Aside from these external factors, nonprofits of any size may decide to have annual reviewed financial statements. The statement of financial position plays many key roles in your nonprofit’s accounting activities and operations, so it’s important to create and analyze it accurately. Use the information and tips above to get started, and don’t hesitate to reach out to an accountant if you have any questions or need help along the way. For your nonprofit to expand its operations and make a greater impact over time, it needs to be financially healthy and sustainable.

You can show donors how you’ve used past donations, what you’ve achieved, and how The Key Benefits of Accounting Services for Nonprofit Organizations you plan to use new funds. A detailed insight enables the nonprofit to assess its financial sustainability, identify trends, allocate resources effectively, and plan for future funding needs and projects. However, 63% of people want to see proof that nonprofits follow a set of guidelines and ethical principles. According to a recent Independent Sector study, nonprofits are still among the most trusted institutions in America, with 57% of people saying they have “high trust” in them. They allow donors, grantors, board members, and the public to see that funds are managed responsibly.