Why Your Nonprofit Needs to Report a Statement of Activities

MIP Nonprofit Statement of Activities Blog

Your nonprofit works to accomplish its mission, and when it comes to communicating that to donors and external stakeholders, no document is as helpful as a statement of activities.  

A statement of activities shows your organization’s revenue and expenses over a reporting period and relays that your organization is a good steward of donations and working to accomplish its mission.  

These statements also show your nonprofit is staying compliant with financial regulations. The Financial Accounting Standards Board also requires nonprofits to report changes in net assets based on the restriction categories of permanently, temporarily, or unrestricted. 

 These statements also help financial leaders show where funding is going, and if your organization’s current programs will have long-term fiscal stability. Through a statement of activities, leadership can determine what programs are working, and where to invest future resources.  

How to Format a Statement of Activity

A nonprofit statement of activities example will have a heading, body, and bottom line. There will be revenue and expense sections in the body. A multi-column format will be used to present the increases and decreases in net assets according to the intent of the donor with column headings for unrestricted, temporarily restricted, and permanently restricted. 

Types of Expenses

It’s important to pay attention to how expenses are classified. Nonprofits use two classifications of expenses: natural and functional. Natural expenses include things like utilities, rent, office supplies, and salary expenses. Functional expenses indicate what activity the expense was incurred. There are three principal functional expenses: program, management and administrative, and fundraising expenses. 

A nonprofit statement of activities with functional expenses will list all the programs under the expense section. Expenses might include salaries, office supplies, utilities, and other costs for each program. 

Conversely, a statement of activities with natural classification would only list the expense types, such as salaries, utilities, office supplies, and others.  

FASB Statement 117 allows most nonprofits to present their functional expenses in the notes of their financial statements, but these expenses may also be presented on the face of the statement. 

Statement of Functional Expenses

If you’re a voluntary health or welfare organization you also must present your expenses in a matrix, which includes both the natural and functional expenses by program, according to FASB Statement 117.  

Direct or Indirect

Some expenses are easily matched to the program activity. Others support more than one program and must be allocated to the appropriate functions. If a building is shared by several programs, for example, the rent must be allocated using an objective method. Note, that there is special guidance on allocating costs related to an activity that combines fundraising with elements of another function. These costs are referred to as joint activities. 

Flexibility

Nonprofit financial statements are useful to donors and contributors to show that your nonprofit has efficiently allocated resources. Statements of activities are useful in assessing the services provided by your organization, its ability to continue those services, and how managers have performed their stewardship responsibilities. 

While FASB Statement 117 establishes minimum standards for nonprofit statements of activities, organizations have some flexibility in how items are sequenced on their reports, which allows for nonprofit reporting standards to meet the needs of different organizations. 

Instant Analysis

After your organization creates a statement of activities, your nonprofit’s financial leader should compare the finished document to your organization’s budget to ensure it’s on track to meet its budgeted goals and continue to be good fiscal stewards of funds.  

The statement of activities will also influence Report 990 generation when it comes time for tax season. The basis of Form 990 is the statement of activities and a statement of functional expense.  

Simplify Report Generation

MIP Fund Accounting® allows you to easily generate a statement of expense with its 130-plus pre-built reports and custom report-builder. Show your organization is on track to accomplish its mission, and that it handles donor funds responsibly. Schedule a demo to find out more about MIP® today.  

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