What Is a Statement of Activity for Non-Profits?

A Statement of Activities serves as a central financial report for non-profit organizations, illustrating their financial performance over a specific period, typically a fiscal year. This document provides a comprehensive overview of how an organization generates and expends its financial resources. It functions similarly to an income statement in the for-profit sector, yet it is specifically designed to reflect the unique financial characteristics and operational goals of non-profit entities.

Understanding the Purpose and Context

The Statement of Activities demonstrates how an entity utilizes its resources to advance its mission rather than to generate profit. This statement offers stakeholders, including donors, grantors, and governing boards, clear insights into the organization’s financial health and operational efficiency. It provides transparency regarding the sources of funding and the allocation of expenses, which is fundamental for maintaining public trust and securing continued support. It allows interested parties to assess whether the non-profit is operating sustainably and effectively managing its financial inflows and outflows. The report helps ensure accountability by detailing how contributions and other revenues are applied towards programs and administrative functions.

Key Sections and Components

A Statement of Activities typically organizes financial information into three main sections: revenues, expenses, and the resulting change in net assets. These components collectively provide a clear picture of an organization’s financial performance during the reporting period.

Revenues represent the total inflows of resources received by the non-profit organization from various sources. This section details the gross amounts of contributions, grants, program service fees, and investment income. The display of these inflows allows stakeholders to understand the diverse funding streams that support the organization’s operations. Organizations must adhere to generally accepted accounting principles (GAAP) when recognizing these revenues.

Expenses detail the total outflows of resources used in the organization’s operations to fulfill its mission. This section categorizes the costs incurred, such as salaries, facility costs, and supplies, reflecting the resources consumed to deliver programs and manage the organization. The presentation of expenses provides insight into how the non-profit allocates its financial resources across its various activities.

The change in net assets is the difference between an organization’s total revenues and its total expenses for the reporting period. This figure indicates whether the non-profit’s overall financial position has improved, declined, or remained stable over time. A positive change signifies an increase in net assets, while a negative change indicates a decrease. This final figure provides a summary measure of the organization’s financial performance during the period.

Revenue and Expense Categories

Revenues reported in a Statement of Activities are classified into distinct categories to provide clarity on their source and any associated donor restrictions. Common revenue streams include contributions from individuals, corporations, and foundations, which are often the primary source of funding. Program service fees, representing earned income from services provided directly related to the organization’s mission, such as tuition or event fees, are also reported. Investment income derived from an organization’s financial assets, like interest and dividends, constitutes another revenue type.

A crucial distinction in non-profit accounting is the classification of net assets as either “without donor restrictions” or “with donor restrictions,” as guided by FASB Accounting Standards Codification 958. Revenues without donor restrictions can be used for any purpose consistent with the organization’s mission. Revenues with donor restrictions are subject to specific conditions imposed by the donor regarding their use or timing, such as funds designated for a particular program or for use in a future period. Organizations must carefully track and report these restricted funds.

Expenses are classified by their functional purpose, which helps stakeholders understand how resources are allocated to various activities. Program service expenses represent costs directly related to delivering the organization’s mission, such as expenses for educational programs or community outreach. Management and general expenses cover administrative costs necessary for the overall operation of the non-profit, including executive salaries, accounting, and general office expenses. Fundraising expenses include costs incurred to solicit contributions, such as marketing and event planning. This functional classification is a requirement under GAAP for non-profit entities.

Statement of Activities Versus Income Statement

The Statement of Activities for non-profits and the Income Statement for for-profit businesses serve similar purposes but exhibit fundamental differences reflecting their distinct organizational goals. A core distinction lies in their primary objectives: non-profit organizations aim to fulfill a specific mission and track changes in their “net assets,” whereas for-profit entities strive to generate “profit” or “net income” for their owners. This fundamental difference shapes the presentation and terminology of each financial statement.

Terminology also varies significantly between the two statements. What a for-profit entity calls “income,” a non-profit refers to as “revenues.” Similarly, while a for-profit might report “costs of goods sold” or general “expenses,” a non-profit classifies its outflows as various “expenses” based on functional categories. The bottom line of an Income Statement is “net income” or “loss,” whereas for a Statement of Activities, it is the “change in net assets.”

Another distinguishing feature is the absence of owners’ equity in non-profit financial statements. Instead of equity, non-profits report “net assets,” which are classified based on the presence or absence of donor restrictions. This concept of donor restrictions is unique to the non-profit model, reflecting the specific conditions often placed on contributions received. For-profit entities do not deal with donor-imposed restrictions on their capital. Information from the Statement of Activities is also vital for regulatory filings, such as the IRS Form 990, which requires detailed reporting of revenue and expense classifications.