What Is the Statement of Activities for a Nonprofit?

The Statement of Activities is a primary financial report for nonprofit organizations, serving a purpose similar to an income statement in a for-profit business. It provides a clear overview of an organization’s financial performance over a defined period, typically a fiscal year. This report effectively details the revenues earned, expenses incurred, and the resulting changes in net assets, illustrating how a nonprofit has utilized its resources to advance its mission. It is a fundamental tool for demonstrating financial accountability and transparency to donors, grantmakers, and regulatory bodies.

Core Components of the Statement

The Statement of Activities presents the financial activities that lead to changes in a nonprofit’s net assets. It is broadly structured into sections for revenues, expenses, and the resulting change in net assets. This structure allows stakeholders to understand the sources of funding and how those funds are expended in pursuit of the organization’s objectives.

Revenues

Revenues for nonprofits originate from various sources. Contributions, encompassing donations and grants, often form a substantial part of revenue, representing funds received from individuals, foundations, or government entities. Program service fees are another revenue stream, generated when the nonprofit charges for services directly related to its mission, such as educational workshops or counseling. Investment income, derived from the organization’s financial assets, and other support, which might include in-kind donations or special event proceeds, also contribute to the total revenue.

Expenses

Expenses on the Statement of Activities are categorized by functional classification, showing how resources are allocated. Program services expenses represent costs directly associated with delivering the organization’s mission, such as expenses for direct aid, educational programs, or research. Management and general expenses cover the administrative overhead necessary to run the organization, including executive salaries, accounting, and general office costs. Fundraising expenses are specifically incurred to solicit contributions and grants, encompassing activities like fundraising events or direct mail campaigns. This functional classification is important for transparency, as it allows stakeholders to assess the proportion of funds directly supporting programs versus those used for administrative or fundraising efforts.

Change in Net Assets

The “change in net assets” is calculated as total revenues less total expenses. A positive change indicates a surplus, meaning the organization brought in more resources than it spent during the period, thereby increasing its net assets. Conversely, a negative change signifies a deficit, indicating that expenses exceeded revenues, leading to a decrease in net assets. This figure provides a clear summary of the organization’s financial performance and its ability to sustain operations and grow its mission over time.

Understanding Net Asset Classifications

A defining characteristic of nonprofit financial reporting, particularly on the Statement of Activities, is the classification of net assets. Accounting standards (FASB ASC Topic 958) mandate how assets are presented, offering clarity on their availability and limitations. These classifications provide stakeholders with a more nuanced understanding of the financial position beyond just the total amount of assets.

Net Assets Without Donor Restrictions

Net Assets Without Donor Restrictions, formerly known as unrestricted net assets, represent funds that can be used for any purpose consistent with the organization’s mission. These funds are not subject to external donor-imposed stipulations and provide the most flexibility for a nonprofit’s operations, allowing for general operating expenses or board-designated initiatives.

Net Assets With Donor Restrictions

Net Assets With Donor Restrictions encompass previously termed temporarily restricted and permanently restricted net assets. These assets are subject to donor-imposed stipulations. Some restrictions may expire over time (e.g., funds for a specific program within a year) or be fulfilled by the organization’s actions (e.g., spending on a particular project). When conditions are met or the time period passes, assets are “released from restriction” and reclassified as net assets without donor restrictions.

Permanently restricted net assets

Permanently restricted net assets, a subset of net assets with donor restrictions, carry stipulations that never expire. An endowment fund is a common example, where the original principal must be maintained indefinitely, but investment income can be used for specified purposes or as unrestricted funds, depending on donor intent. These classifications collectively illustrate the legal and contractual limitations on a nonprofit’s resources, providing a comprehensive view of its financial adaptability.

How It Connects to Other Financial Statements

The Statement of Activities is linked with other primary financial statements, forming a holistic picture of financial health. This interconnectedness ensures a comprehensive view of the nonprofit’s financial position, performance, and cash flows.

Statement of Financial Position

The “change in net assets” directly impacts the Statement of Financial Position (balance sheet). This figure (surplus or deficit) is added to or subtracted from total net assets on the Statement of Financial Position at period end. This direct flow ensures that the cumulative financial results from operations are reflected in the organization’s overall financial standing at a specific point in time.

Statement of Cash Flows

While the Statement of Activities uses accrual accounting (recognizing revenues when earned and expenses when incurred regardless of cash movement), the Statement of Cash Flows focuses solely on cash inflows and outflows. It reconciles the change in net assets from accrual basis to actual cash generated and used. This reconciliation helps stakeholders understand the nonprofit’s liquidity, revealing its ability to generate sufficient cash to meet its obligations and fund its activities. The Statement of Cash Flows categorizes cash activities into operating, investing, and financing sections, detailing how cash is managed.