A Detailed Guide on Nonprofit Balance Sheets +Sample

Maintaining well-organized Nonprofit Financial Statement Templates ensures consistent bookkeeping and simplified reporting. Nonprofits must file financial statements with the IRS to follow compliance laws, which is not the only reason they should include these activities. The information presented on the statement is also required when a nonprofit is applying for tax exemption with the Internal Revenue Service (IRS). For this reason, Net Assets are broken down into Restricted Net Assets and Unrestricted Net Assets on a nonprofit balance sheet. So you can see which assets you can use to offset your liabilities, if and when it’s necessary. Ideally, you would have far more assets without restrictions than with restrictions.

Common mistakes in reading nonprofit balance sheets

Use our free budget template for nonprofit organizations for your entire operations, certain sites, or individual events or programs for a quick way to keep track of budgeting needs. These resources are crafted to save you time, reduce administrative burdens, and help you focus on what truly matters—advancing your mission and serving your community. This resource hub includes a variety of free nonprofit tools and templates designed to streamline your operations and maximize your impact. The Balance Sheet of an organisation is a statement showing its financial position on a particular date.

Additional Nonprofit Accounting Resources

Analyzing these trends provides a more dynamic view of your organization’s financial health. Assets are what your organization owns, liabilities are what it owes, and net assets represent the difference between the two (essentially, your organization’s equity). For-profits https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ list owner’s equity or shareholder funds, while nonprofits show net assets (after liabilities are subtracted from assets).

Significant Accounting Policies

Discover essential strategies for effective hotel budgeting, including forecasting, demand management, and financial modeling, to enhance profitability. A large net assets figure could give the impression that your organization has ample resources readily available. Use accounting software to improve your balance sheet accuracy and efficiency. For example, they may contribute directly to program beneficiaries, or they may function more as program service expenses supporting the mission.

Standard statements like the Statement of Financial 5 Main Benefits of Accounting Services for Nonprofit Organizations Position, Activities, Cash Flows, and Functional Expenses simplify annual reporting consistency. As we mentioned earlier, many nonprofits use these financial statements in their annual reports to show transparency and build trust in their organization. At times, supporters will give donations stipulating that they can only be used on a specific project or program. The net assets on your statement of financial position are where your organization must list these restrictions.

Investigate the context behind numbers that don’t reflect positively on your financial position.

• Comparing these results to those from past balance sheets can reveal upward trends to capitalize on or downward trends to reverse.
• The Statement of Financial Position, also known as the balance sheet, provides an overview of an organization’s assets, liabilities, and net assets at a specific point in time.
• Liquidity refers to how quickly an asset can be converted into cash without significant loss in value.
• Budget vs. Actual is an internal report, not part of your audited financial statements.
• Finally, they also enable leadership to find potential financial opportunities and ways to address financial concerns.

Unrestricted net assets are funds that can be used at the discretion of the organization’s management. They provide flexibility and support the organization’s ongoing operations and strategic initiatives. Nonprofit accounting involves recording and reporting financial information for organizations that do not operate to earn a profit. The nonprofit organization’s statement of financial position, also known as the balance sheet, provides a clear picture of the organization’s financial health. It shows what the organization owes and what the organization owns, giving insight into the nonprofit’s financial situation.

• Templates allow customization to capture metrics most relevant to the organization’s mission and operations.
• This line is a direct connection with and should be equal to the bottom line of an organization’s income statement (also called a Statement of Activities or profit/loss statement).
• Just as you’d check your own backpack to see what you have and what you owe, a balance sheet shows what a nonprofit owns like money and property and what it owes like bills or loans.
• In addition to these statements, nonprofit financial reporting may also include notes to the financial statements.
• By understanding the Liabilities Section, stakeholders can assess the organization’s ability to meet its financial obligations.
• Nonprofits are required to make their nonprofit financial reports available to the public, especially if they are tax-exempt 501(c)(3) organizations.

Statement of Activities

But in your audited nonprofit financials, it will be called a Statement of Financial Position. Net assets increase when the organization receives income and decrease when the organization incurs expense. This is another format but is for presenting the figures of multiple years in the same Balance Sheet of a Nonprofit. This makes it very easy for anyone to run through the figures and understand the position  of the organisation for the last few years. Also, a comparison can be easily made in terms of percentages for two successive years for easy analysis. This is certainly a good sample to chose in case you are about to do some analysis for your organisation.

Services

Your net assets represent the residual interest in your organization’s assets after subtracting your liabilities. In simpler terms, an organization’s net assets equal their assets minus their liabilities. Generally, nonprofits with higher net assets are financially healthier than those with lower net assets. Cash basis accounting means that you record revenues and expenses based on when the cash moves in or out of your business.

• Think of current liabilities as a to-do list your nonprofit must undertake within the coming year.
• But because the board and leadership are involved in creating a nonprofit budget, it’s often more familiar and more useful on a day-to-day basis.
• You can simplify the process of gathering the relevant data by using intuitive and powerful nonprofit accounting solutions.
• An organization’s liabilities include any money that is owed to another party.
• For your nonprofit to expand its operations and make a greater impact over time, it needs to be financially healthy and sustainable.
• Current assets include, among other things, cash on hand, grants receivable, and other resources readily convertible to cash.
• At Relay, we help nonprofits simplify their finances, securely collaborate with their financial advisors, and stay on top of their cash flow.

The net assets section includes items such as unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. For example, you may find that while your net assets are lower than you’d like them to be, they’ve been steadily increasing over time, indicating growth and sustainability. It may be tempting to narrow in on one section of the balance sheet and make a quick assumption about your organization’s financial health.