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These Financial Documents are Key to Every US Nonprofit Featured

These Financial Documents are Key to Every US Nonprofit Bernd Klutsch

Nonprofits are organizations owned by shareholders and with no intention to earn profits. Rather, they seek to gain revenue to distribute for programs, grants and other support systems in society. While nonprofits are not required to earn profits by law, they have financial reporting systems at their disposal that helps them understand and report their financial statement. With auditing being a requirement of nonprofits, just like the for-profits, auditors and grantors, as well as the board of directors, might demand reports concerning the nonprofit’s financial health and the viability of the courses they are participating in. These financial documents are key to every nonprofit in the US.

  1. Statement of financial position (SOP)

The statement of financial position (SOP) is a document that reflects the overall position of a nonprofit at a particular moment. It shows the snapshot of the nonprofit’s finances - listing assets in order of liquidity and the speed at which they can be converted to cash- and the liabilities in their order of length of obligation. This document is prepared at the end of the fiscal year, although some bigger nonprofits or those with extensive financial changes may choose to do it quarterly or monthly. The assets listed include cash and equivalents like gift cards, grants receivable or depreciable furnishing or equipment. On the other hand, the liabilities include grants due, accounts payable or debts.

  1. Statements of activities

This document shows the revenue and expenses of your organization over a given reporting period. It shows that a nonprofit is a good steward of donations and works to accomplish its mission. The statement of activities shows how your net assets change over time, increasing as revenue comes in and reducing when you pay expenses. This statement is a nonprofit equivalent of an income statement for for-profits. The statement of activities distinguishes between permanently restricted, unrestricted and temporarily restricted activities in a nonprofit.

  1. Statement of financial expenses

As implied by its name, the statement of functional expenses lists a nonprofit's expenses by their function, like the program, fundraising and administrative expenses. It also lists expenses by their type, which can be rent, utilities, salaries and benefits. It shows the balances that your nonprofit maintains between funding programs and staff. It also shows the administrative expenses and how a nonprofit attract competent and qualified staff. The costs can be in two or more categories at the same time.

  1. Statement of cash flows

This financial statement provides a picture of the cash that comes in and out of a nonprofit in a given period. The period can be a year, a quarter, a month or on demand. It provides aggregate data on all cash inflows that a nonprofit receives from its operations and external investment sources. Furthermore, it includes three features of a nonprofit, which includes operating activities, investing activities and investing activities. The operating activities include unrestricted funds raised in a nonprofit through fundraising activities or cash from fee-for-service operations. Investing activities include expenses or earnings from purchasing or selling equipment or other long-term equipment. On the other hand, financing activities include aspects such as earnings from bond issuance.

  1. Annual report

Instantaneously, nonprofits have enough information about finances not included in the statements above. This is where the annual report comes into play. The report can be useful in communicating your nonprofit’s fiscal health in more detail. The information in the annual report includes attendance records for fundraising initiatives or community events, lists of donors and their donations, and discussion regarding the nonprofit's mission and activities, such as successes in lobbying, volunteer support and others.

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