how to prepare financial statements for nonprofit organization

You don’t want to use a program that is too large with too many features you won’t be using and too cumbersome as it will most likely be difficult to learn. If it’s difficult for you to learn, it could be difficult for each new volunteer treasurer to learn as well. I suggest starting out using the cash method of accounting instead of the more elaborate accrual method for your nonprofit. You will have to choose one or the other before completing your first tax return, but you can change it at a later time by requesting the IRS form 3115 here.

If you’ve dealt with for-profit cash flow statements before, this should look very familiar. When you reconcile your bank accounts, all you’re doing is comparing each transaction from your bank statement with the ones you have in your books. We recommend doing a bank reconciliation at least once a month to make sure your books are up to date and accurate, to help track cash how to prepare financial statements for nonprofit organization flow, to prevent fraud and to detect bank errors. Most nonprofits elect some kind of treasurer or financial officer to manage all of the organization’s finances. Using a personal bank account and keeping a shoebox full of receipts isn’t going to cut it. Auditors must be given notice of every meeting of the members and are entitled to attend at the corporation’s expense.

Assessing Nonprofits using Financial Statements and Ratios

If a grant-maker or a donor gives you money that is dedicated for specific programs, or that you need to use by a specific date, it’s still an asset. The audit process may look a little different this year, as many audits will be conducted remotely. If the remote format is new audit territory for your organization, check out our previous article, How Your Nonprofit Organization Can Prepare for a Remote Audit, to learn more. Learn how to create budget reports through Aplos’ accounting platform. Even though for-profits and nonprofits both use these reports, some of the reports go by a different name in the nonprofit sphere. A purchase order is a document sent from a purchaser to a vendor to confirm a specific purchase of goods or services, and are generally a great way to make sure you and your supplier are always on the same page.

When a board member asks for a cash flow statement, usually it’s because you’re losing cash. But in your audited nonprofit financials, it will be called a Statement of Financial Position. Nonprofits may now take advantage of the simplified accounting alternatives for reporting goodwill and certain identifiable intangible assets already available to private companies.

Robin Matthews, CPA

If an appointed auditor no longer meets the independence requirements they must resign immediately. Whether an auditor is independent is a question of fact but there are situations where an auditor is assumed not to be independent. The content on our website is only meant to provide general information and is not legal advice. We make our best efforts to make sure the information is accurate, but we cannot guarantee it. For assistance with legal problems or for a legal inquiry please contact you attorney.

how to prepare financial statements for nonprofit organization

In this course, Professor Grasso draws on a wealth of first-hand experience with nonprofit management to give you a guided tour through the structure and interpretation of typical nonprofit financial statements. Professor Grasso will walk you through reading and interpreting financial statements including an income statement, balance sheet, and cash flow statement. Using financial ratios, he will show you how to analyze the health of an organization by analyzing its cash reserves, debt burden, and expenses. You will practice calculating 10 different ratios and interpreting their results. And Professor Grasso will provide you with guidance on how to adjust your organization’s strategy based on those results.

Examples of Financial Statements

Under the alternative for goodwill, nonprofits may choose to amortize qualifying goodwill on a straight-line basis over ten years (or less if more appropriate). If this alternative is elected, you must apply subsequent measurement, derecognition, presentation, and disclosure requirements to existing goodwill and all applicable future additions to goodwill. We hope you found this quick walkthrough of nonprofit reports helpful.

For more information about how to create a budget, check out the National Council of Nonprofits guide to Budgeting for Nonprofits. Both membership and charitable corporations are required to have their Financial Statements audited unless the corporation comes within one of the exceptions. Charitable corporations that solicit money or property from the public must have an audit committee.