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Preparing a Financial Statement for a Nonprofit Organization

Preparing a financial statement for a church or any other type of nonprofit organization is different than preparing a financial statement for other for profit businesses. A financial statement offers an overall barometer on the financial health of an organization. Such statements contain a set of documents that comprise guidelines offered by the Financial Accounting Standards Board that include, but may not be limited to:



. A statement of activities
. A statement of current financial position
. Financial statement disclosures
. A statement of cash flows
. A statement of "functional expenses"

Statements of activities are basically known as income statements that help visualize revenue, expenses, profits and deficits. The statement of activities finds and focuses on the company or organization and is considered to be supplemental data that reports fluctuations in net assets. Various types of assets, such as temporarily restricted net assets, unrestricted net assets, permanently restricted net assets and total net assets are taken into consideration in this portion of a financial statement document. These figures are necessary because gains or losses on investments as well as revenues will increase or decrease those figures.

The statement of financial position is a balance sheet that defines the amount of assets, net assets, deficits and liabilities associated with a company or organization. This portion of the document provides information on financial liquidity, cash, and other assets. Be advised that the amounts of various types of assets (unrestricted, temporarily restricted or permanently restricted net assets) need to be included.

The statement of functional expenses should include information regarding program services that serve to meet the needs, mission, or purpose of the organization. Expenses also include business management, record-keeping, administrative, budgeting, and oversight activities and associated expenses. This section of the document also contains information regarding fundraising events and publicity expenses surrounding such events. Also included in the statement of functional expenses are membership development activities.

Cash flow statements provide a breakdown of expenses and revenues for all types of profit and nonprofit organizations and businesses.

Financial statement disclosures should include information regarding contributed services, programs, or activities. This portion of the document provides information regarding depreciation, a breakdown in explanation between permanent restriction of held assets, or unsold assets that have been donated under conditions such as permanent endowments, as well as contribution of art or collectibles.

Individuals preparing financial statements for not-for-profit organizations need to be aware of the difference between unrestricted net assets, temporarily restricted net assets, and temporarily restricted support. Depending on the focus of a nonprofit organization, components may vary, but complete financial statements should include the above key points.

Nonprofit organization financial officers should maintain financial planning records and analysis to create periodic financial statements, cash flow statements, statements of activities and financial position in order to maintain the mission and goals of the nonprofit organization, as well as its financial health, to offer optimal benefits that meet the needs of communities they serve.

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