How to Prepare a Statement of Revenues and Expenditures
Learn to build a cash-basis financial statement to accurately track revenue and expenditures, assess short-term financial health, and make informed decisions.
Learn to build a cash-basis financial statement to accurately track revenue and expenditures, assess short-term financial health, and make informed decisions.
A Statement of Activities is a financial report that provides a summary of an organization’s revenues and expenses over a defined period. This statement is prepared using the accrual basis of accounting, as required by Generally Accepted Accounting Principles (GAAP). Under the accrual basis, revenues are recorded when they are earned, and expenses are recorded when they are incurred, regardless of when the cash changes hands. This statement is a component of a non-profit’s financial reporting and is frequently used by non-profit organizations and smaller government entities.
Revenues represent all the income an organization earns during a specific accounting period. For non-profits, these funds are the primary source of operational funding. Identifying and correctly categorizing this income is a preliminary step in preparing the statement.
Common sources of revenue include donations from individuals and corporations, which are voluntary contributions. Grants from foundations or government bodies are another significant revenue stream. Membership fees, paid by individuals or organizations to receive benefits, also constitute revenue. Furthermore, many organizations generate program service fees from services they provide, such as ticket sales for a performance.
Expenses are all the costs an organization incurs during the reporting period. These costs are associated with running the organization and delivering its programs and services. A detailed tracking of expenses is necessary for accurate financial reporting and management.
The largest expense for many organizations is salaries and wages paid to employees for their work. Other significant operational costs include rent for office or program space and utilities such as electricity, water, and internet services. Office supplies and program costs are expenses directly tied to carrying out the organization’s mission, such as materials for a workshop.
The first step in creating the statement is to select the reporting period. This timeframe can be a month, a quarter, or a full year, depending on the needs of the organization for financial oversight. The chosen period should be clearly stated in the heading of the document to provide context for the financial data presented.
Once the period is defined, the next action is to list and categorize all revenue sources. This involves gathering data from bank statements, donation records, and grant agreements to identify all revenue earned. Each revenue item should be listed separately and then summed to calculate the total revenue for the period.
Following the compilation of revenues, all expenses must be similarly listed and categorized. This requires reviewing receipts, invoices, and payroll records to account for every expense incurred. Expenses should be grouped into logical categories like salaries and rent, and then added together to determine the total expenses.
The final step is to calculate the net result by subtracting the total expenses from the total revenue. This figure reveals the organization’s net financial outcome for the period. If revenues exceed expenses, the result is a “Net Surplus.” Conversely, if expenses are greater than revenues, the outcome is a “Net Deficit.”
A net surplus, where total revenues are greater than total expenses, indicates a positive financial result for the reporting period. This suggests the organization successfully managed its finances. For managers and board members, a surplus can be a signal of financial health, providing funds that can be allocated to reserves, used to pay down debt, or reinvested into programs.
A net deficit, where total expenses surpass total revenues, signifies a loss for the period. While a deficit in a single period is not always a cause for alarm, persistent deficits can indicate underlying financial challenges. This information prompts leadership to review budgeting strategies and explore ways to either increase revenue or decrease spending.
The statement serves as a practical tool for financial assessment and future planning. It provides clear data that helps in making informed budgeting adjustments. For instance, if a program’s costs are consistently higher than anticipated, the statement will highlight this, allowing for a review of that program’s budget. Stakeholders use this report to gauge the organization’s financial performance.