Nonprofit Statement of Activities: A Complete Guide (+Template)

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August 23, 2023

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August 23, 2023

In this article, we are going to unravel the exciting world of nonprofit accounting by breaking down the Statement of Activities. Yes, you read that right, 'exciting' and 'accounting' in the same sentence!

Whether you know it or not, the Statement of Activities is the unsung hero in the financial story of your nonprofit.

By the end of the post, you'll understand each section of the Statement of Activities, how they work, and how they come together to advance the sustainability and growth of your organization.

Let’s get started.

Overview of Nonprofit Statement of Activities

Overview

A Nonprofit Statement of Activities is a comprehensive report that gives a clear picture of an organization's fiscal operations over a given period.

Each year, nonprofit organizations are required to file Form 990 with the Internal Revenue Service (IRS). This form is a public document that provides information about a nonprofit's programs, mission, and finances—and part of it includes the Statement of Activities.

However, it's important to note that the Statement of Activities is just one part of the accounting puzzle. Other forms will be needed for the Form 990, like a Balance Sheet and Statement of Functional Expenses.

In general, the Statement of Activities is required to paint a holistic picture of a nonprofit's financial health and ensure fiscal transparency in its operations.

In the following sections, we will go into more detail about the Statement of Activities and its individual components.

What Is a Statement of Activities?

Income Statement

A Statement of Activities, often compared to the Income Statement of a for-profit business, is a critical financial document for any nonprofit organization.

Let's delve deeper into understanding its components and importance.

While a Statement of Activities is similar to a for-profit Income Statement, it differs in that instead of reporting on profits and losses (since nonprofits don’t make profits) it simply shows changes in an organization's net assets.

So even though nonprofits aren’t designed to generate profits, they still have revenue and expenses that must be meticulously accounted for.

What it records

The Statement of Activities records:

  • Revenue: Revenue refers to the total income generated by the nonprofit organization through various sources. This includes donations, grants, membership fees, fundraising events, and sales of goods or services.

    For example, a nonprofit animal shelter might receive revenue from adoption fees, donations, and fundraising events.
  • Expenses: Expenses are all costs incurred by the nonprofit organization in carrying out its mission. This includes salaries and wages of staff, cost of goods sold, administrative costs, marketing and fundraising expenses, and other costs related to the programs and services of the organization.

    For example, a nonprofit health clinic would have expenses such as medical supplies, staff salaries, and facility upkeep.
  • Net Assets: On the Statement of Activities, net assets are your total revenue minus your total expenses. This section shows the change in net assets from the beginning to the end of the financial period.

    For instance, if a community outreach nonprofit earned $150,000 in revenue and incurred $100,000 in expenses, their net assets at the end of the year would be $50,000.

Unlike some other financial forms, it’s important to understand that the Statement of Activities is not a living document; it does not continuously update or change. Instead, it acts like a snapshot, providing a clear and concise picture of a nonprofit's financial health during a specific time frame—typically the organization's fiscal year.

This means that the Statement of Activities reports on all the revenue earned, expenses incurred, and changes in net assets within this annual period.

Here’s a great example of a Statement of Activities from the American Red Cross. We will break down this example in more detail later on in the article.

Importance to Nonprofits

The importance of a Nonprofit Statement of Activities cannot be overstated.

This statement offers an in-depth look into a nonprofit’s sources of funding, the uses of these funds, and whether or not the organization is operating within its budget.

By providing a clear snapshot of the nonprofit's economic activities, a Statement of Activities allows stakeholders to assess the organization’s financial health. This transparency and accountability is crucial for building trust with funders, donors, staff, volunteers, and even future supporters.

Having a high level of financial transparency plays a key role in the sustainability and growth of any nonprofit organization.

Additionally, a nonprofit Statement of Activities also acts as a strategic internal tool for nonprofit leaders, enabling them to evaluate the efficacy and viability of the organization’s programs.

By analyzing the revenue and expenses associated with each initiative, nonprofits can identify which campaigns and programs yield the best return on investment (ROI). For instance, a successful fundraising event that brought in significant revenue relative to its costs would likely merit repeating or expanding.

Conversely, a program with high costs but low revenue or impact might need to be reassessed or refined to better align with the organization's mission and financial capabilities.

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Components of a Nonprofit Statement of Activities

Abstract

This section will delve more deeply into the key components that make up a Nonprofit Statement of Activities. Understanding these elements thoroughly is essential for comprehending a nonprofit organization's financial health and operational efficiency.

Revenue

Revenue represents all the funds a nonprofit has gathered over a specific period (generally the fiscal year).

This revenue could come from various sources, including:

Within your Statement of Activities, it's crucial to categorize revenue into unrestricted, temporarily restricted, and permanently restricted funds to provide a clear picture of how resources can be allocated and used in the future.

If you’re unsure how to make these distinctions, check out this post on the difference between restricted and unrestricted funding.

Expenses

​​Expenses denote all the costs incurred during a specific period while carrying out the organization's mission. These expenses are generally categorized under:

  • Program Expenses: These are costs directly linked to the organization's programs or services. These may include the cost of materials for program activities, staff salaries directly involved in program delivery, and other specific program-related expenses. For example, in a nonprofit literacy program, the cost of books, educational materials, and the salary of teaching staff are considered program services expenses.
  • Administrative: These are costs related to the operation of the organization. Examples include salaries for management, office supplies and rent, insurance payments, legal services fees, etc.
  • Fundraising: As the name suggests, these expenses are related to fundraising activities for the organization. Such activities include marketing campaigns (e.g., print ads or digital outreach) and events such as galas, conferences, or campaigns to build public awareness.

Changes in Net Assets

Changes in net assets is a unique and critical component of the Nonprofit Statement of Activities. It reflects the difference between revenues and expenses over a specific period.

A common misconception about nonprofit organizations is that they should operate on a break-even budget. However, this concept can lead to financial instability and deter the organization's growth and impact.

In reality, successful nonprofits operate similarly to for-profit entities in terms of financial management—they aim to have revenues exceeding expenses. Accumulating surplus revenue allows nonprofits to build a financial cushion, safeguarding them against unforeseen expenses or downturns. It also enables them to reinvest in their mission, expand their services, and innovate, thereby increasing their impact.

The changes in net assets section of the Statement of Activities gives stakeholders a clear picture of the organization's financial health. Understanding these changes and trends can guide strategic decision-making, helping to ensure the organization's long-term sustainability.

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Nonprofit Statement of Activities Example (+Template)

Example

In this section, we will present a Nonprofit Statement of Activities example, along with a customizable template. This practical example and template will help you better understand how the information discussed earlier comes together in a real-life document.

Annotated Example

Let's look at a simplified, annotated example of a Nonprofit Statement of Activities from the American Red Cross:

American Red Cross Nonprofit Statement of Activities

American Red Cross

Statement of Activities

For the Year Ended June 20, 2021

Revenue:

American Red Cross Nonprofit Statement of Activities

The image above demonstrates the American Red Cross's operating revenue and gains in 2021 and in 2020. It’s important to note the donations that come with restrictions and without.

For example, you can see that $218,178 corporate, foundation, and individual giving comes without restrictions. This means that the American Red Cross is able to disperse these funds as they see fit.

On the other hand, $311,227 corporate, foundation, and individual giving has restrictions. This means that the Red Cross may only use those donations for purposes specifically outlined by the donor.

Expenses:

American Red Cross Nonprofit Statement of Activities

Above is an example of the American Red Cross’s expenses. “Operating expenses” are categorized by their different programs (services to Armed Forces, Biomedical services, Community services, etc.) You can also see examples of administrative expenses like general management and fundraising services.

 Change in Net Assets:

American Red Cross Nonprofit Statement of Activities

For this example, we see the change in net assets between 2021 and 2020 (far right) for operating expenses. As this is a large report, there are additional pages describing the total change in net assets. The $324,325 represent the net assets without restrictions. There are then $30,167 of assets with restrictions.

Template for Use

To assist in creating your own Nonprofit Statement of Activities, you can download the following template:

Nonprofit Organization's Name

Statement of Activities

For the Year Ended 20XX

Revenue Without Restrictions With Restrictions 20XX (Current Year) 20XX (Previous Year)
Contributions:        
Corporate, Foundation, Individual        
Legacies & Bequests        
Contracts        
Return on Investments        
Membership Fees        
Program Service Revenues        
TOTAL REVENUE        
         
EXPENSES        
Program Services        
Management & General        
Fundraising        
TOTAL EXPENSES        
         
CHANGE IN NET ASSETS        
Total Revenue        
Total Expenses        
Change in Net Assets        


Keep in mind that the precision and accuracy of these figures are essential for a clear understanding of your organization's financial health and operations.

Wrapping Up: The Next Steps

Financial Statement

The Nonprofit Statement of Activities is an essential financial document that offers a comprehensive view of an organization's financial status. Its significance to nonprofit organizations lies in its transparency into funding sources, the usage of these funds, and the organization's budgetary operations.

Understanding and accurately maintaining this statement can guide strategic decision-making, enhance stakeholder trust, and help ensure the long-term sustainability of your organization.

Don't forget to enhance your nonprofit's efficiency and funding potential with Instrumentl. Instrumentl is your go-to resource for all your nonprofit needs and questions.

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