Is a Statement of Activities the Same as a P&L?

Financial statements offer insights into an organization’s financial health and performance. The Profit and Loss (P&L) statement and the Statement of Activities (SoA) are key reports summarizing financial performance over a period. While both track inflows and outflows, their structures and terminologies reflect the distinct nature and objectives of the organizations that use them. This article clarifies whether these statements are interchangeable and explores their individual roles.

The Profit and Loss Statement

The Profit and Loss (P&L) statement, also known as an Income Statement, summarizes an organization’s revenues, costs, and expenses over a specific period, such as a quarter or fiscal year. Its primary purpose is to determine the net income or loss generated by a business, reflecting its profitability. For-profit businesses primarily use this statement to assess their ability to generate sales, manage expenditures, and create profit.

Key elements on a P&L statement include various forms of revenue, such as sales or service revenue, representing total income from core operations. The Cost of Goods Sold (COGS) is deducted from revenue to arrive at gross profit. Operating expenses, such as selling, general, and administrative costs, are then subtracted to determine operating income. Finally, non-operating income or expenses, like interest and taxes, are factored in to calculate the net income or loss for the period.

The Statement of Activities

The Statement of Activities (SoA) serves as the income statement equivalent for non-profit organizations, summarizing their financial performance over a defined period. Its main objective is to report changes in an organization’s net assets, illustrating how resources are acquired and utilized to fulfill its mission. This statement helps non-profits demonstrate accountability and transparency to stakeholders, including donors, grantors, and the public.

The SoA details revenues, which for non-profits often include contributions, grants, program fees, and investment income. Expenses are categorized by function, such as program services, management and general, and fundraising, showing how funds are allocated. Gains and losses from investments or asset sales are also reported. A distinguishing feature is the classification of net assets into “with donor restrictions” and “without donor restrictions,” indicating how funds are legally obligated. The statement shows the change in total net assets over the period, reflecting whether the organization’s financial position improved or declined.

Core Differences

A fundamental distinction between these two financial statements lies in their terminology and primary objectives. A P&L statement culminates in “Net Income” or “Net Loss,” reflecting profit generation. The Statement of Activities reports the “Change in Net Assets,” emphasizing the stewardship and utilization of resources. This difference highlights the core purpose of each organizational type: for-profits aim to generate wealth for owners, while non-profits focus on fulfilling a mission.

The accounting frameworks also distinguish these statements. For-profit entities adhere to GAAP for their P&L statements, prioritizing the accurate measurement of income and expenses leading to profit. Non-profits also follow GAAP, but with specific guidance from the Financial Accounting Standards Board (FASB) under Topic 958. This guidance mandates the classification of net assets with and without donor restrictions, a concept absent in for-profit accounting. This classification in the SoA provides transparency regarding how restricted funds are managed and released.

The focus of each statement also diverges. A P&L emphasizes profitability, operational efficiency, and shareholder value, providing insights into a company’s ability to earn revenue and control costs. Conversely, an SoA highlights how effectively a non-profit uses its resources to advance its mission, focusing on the allocation of funds across programs, management, and fundraising efforts. This functional expense reporting allows stakeholders to assess the organization’s impact and resource deployment.

Shared Characteristics

Despite their distinct purposes and structures, the Profit and Loss statement and the Statement of Activities share fundamental characteristics as financial performance reports. Both statements cover a specific period, such as a month, quarter, or fiscal year, providing a snapshot of financial activity over that duration. This temporal focus allows for analysis of trends and performance over successive periods.

Both reports summarize financial performance by tracking inflows and outflows of economic resources. They detail revenues, representing money earned or received, and expenses, representing costs incurred. This function of matching revenues with corresponding expenses is central to understanding an organization’s operational results. Both statements are prepared using the accrual basis of accounting, which recognizes revenues when earned and expenses when incurred, regardless of when cash changes hands. This method provides a comprehensive and accurate picture of financial activity during the reporting period.