Nonprofit Financial Statements: Templates and Examples
Three statements with different names from the business versions: financial position, activities, and cash flows. Same arithmetic, different labels, plus one genuinely nonprofit feature that is the split by donor restriction.
Nonprofit financial statements are the business ones with different names and one genuinely different feature. The names confuse people and the different feature is what actually matters.
| Business | Nonprofit | Answers |
|---|---|---|
| Balance sheet | Statement of financial position | What we own and owe, on one date |
| Profit and loss | Statement of activities | What came in and went out, over the year |
| Cash flow statement | Statement of cash flows | Where the cash actually moved |
| No equivalent | Statement of functional expenses | What the money was spent on, by function |
The fourth row is the one with no business counterpart, and it is required for organizations filing the full Form 990.
Statement of financial position
A snapshot on one date, usually your fiscal year end. Assets, minus liabilities, equals net assets.
The nonprofit feature is in net assets, which split two ways: without donor restrictions and with donor restrictions. The first is money you can spend on anything within your mission. The second is committed by donors to a purpose or a period.
That split is the single most useful thing on the statement. An organization can hold a healthy total and still be unable to make payroll, because most of the balance is restricted. The number that tells you whether you can operate is net assets without donor restrictions, not the total.
Older statements used three categories, being unrestricted, temporarily restricted and permanently restricted. Current presentation uses the two above, so statements you find from before the change will look different.
Statement of activities
The year’s revenue and expenses, with the change in net assets at the bottom. Two things distinguish it from a profit and loss account.
It is presented in columns by restriction. Revenue arrives restricted or unrestricted, and the reader can see which.
Net assets released from restriction. When you spend against a restricted grant, the amount moves from the restricted column to the unrestricted column. It appears as a positive in one and a negative in the other, netting to zero overall. This entry is manual in most accounting software and is one of the most commonly forgotten adjustments at small organizations.
Expenses are presented by function: programme services, management and general, and fundraising. Those are the same three categories Form 990 requires, which is why your chart of accounts should be built around them from the start.
Statement of cash flows
Often skipped by small organizations and worth producing, because a statement of activities can show a surplus in a year you could not pay your bills.
It reconciles the change in net assets to the actual movement in cash, across operating, investing and financing activities. The indirect method, which the template uses, starts from the change in net assets and adjusts for non-cash items such as depreciation and for movements in receivables and payables.
For an organization with grants paid in arrears, this is the statement that shows the gap between what you earned and what arrived.
Statement of functional expenses
Every expense allocated across three functions. Required for organizations filing the full Form 990, and useful regardless.
| Function | Includes |
|---|---|
| Programme services | Everything directly delivering the mission |
| Management and general | Governance, accounting, general administration, the annual return |
| Fundraising | Appeals, events, grant writing, donor stewardship |
Shared costs are allocated on a documented basis: time studies or timesheets for salaries, square footage for occupancy, headcount for shared services. Decide the basis once, apply it consistently, and write it down. Auditors ask, and an allocation nobody can explain looks arbitrary because it is.
One thing to resist. Do not present your programme expense ratio as an achievement. The pressure to minimise overhead has produced real underinvestment in accounting, technology and staff across the sector. Report the figures and let them speak.
Reading someone else’s
Every organization filing a full Form 990 or 990-EZ discloses this material publicly, and three consecutive years must be available for public inspection. In practice they are all online free on ProPublica Nonprofit Explorer.
Five questions worth asking of any set you read.
What are unrestricted net assets, not total net assets? That is the spendable figure.
How many months of expenses would that cover? Divide by monthly expenses. Under three months is thin, and common.
What share of revenue comes from the largest source? Above about a third is a single point of failure.
Did net assets rise or fall, and why? A fall is not automatically bad if it was a planned draw on reserves for something specific.
Do the statements agree with the Form 990? They should, and where they do not there is usually an explanation worth having.
The notes, which carry the detail
Audited and reviewed statements come with notes, and the notes frequently matter more than the numbers above them.
| Note | Why it matters |
|---|---|
| Nature of activities | What the organization actually does, in the auditor’s words |
| Summary of accounting policies | How revenue is recognised, what is capitalised, how costs are allocated |
| Liquidity and availability | How much is genuinely available within a year. Read this first. |
| Net assets with donor restrictions | What each restriction is and when it releases |
| Concentrations | Whether one funder dominates. Often the most important disclosure. |
| Related party transactions | Dealings with board members and their businesses |
| Commitments and contingencies | Leases and anything that could become a liability |
| Subsequent events | Anything significant after year end but before the report was issued |
The liquidity note is the one to read first and the one most people skip. It states in plain terms how much of the balance sheet is actually available to meet general expenditure within a year, which is the question a set of statements is being read to answer.
The concentrations note is next. An organization whose statements disclose that one funder provided sixty per cent of revenue has told you its largest risk, and it is a risk no ratio on the face of the statements would reveal.
A worked example
A small organization with one part-time coordinator, one restricted grant and a modest reserve. Figures rounded.
| Statement of financial position | Amount | What it tells you |
|---|---|---|
| Cash | $41,000 | Looks comfortable |
| Grants receivable | $8,000 | Awarded, not yet arrived |
| Total assets | $49,000 | |
| Accounts payable | $3,500 | |
| Total liabilities | $3,500 | |
| Net assets without donor restrictions | $14,500 | This is the real number |
| Net assets with donor restrictions | $31,000 | Committed to the programme grant |
| Total net assets | $45,500 | Misleading on its own |
The organization appears to hold $45,500 and can actually spend $14,500. Against monthly expenses of about $5,200, that is under three months of cover, which is thin and entirely typical.
This is the single most common misreading of a nonprofit balance sheet, and it is made by boards, by donors and by founders. Always divide unrestricted net assets by monthly expenses before drawing any conclusion about financial health.
Audited, reviewed or internal
| Prepared by | Assurance | Accepted by funders | |
|---|---|---|---|
| Internal | You | None | Sometimes, for small grants |
| Compilation | An accountant, from your figures | None | Rarely |
| Review | An accountant | Limited | Frequently |
| Audit | An accountant | An opinion | Always |
Before commissioning an audit because a funder asked for financial statements, ask whether a review would satisfy them. It often does, and a review typically costs between a third and a half of an audit.
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Questions people ask
What financial statements does a nonprofit need?
Three at minimum: a statement of financial position, a statement of activities, and a statement of cash flows. Organizations filing the full Form 990 also produce a statement of functional expenses.
They correspond to the business balance sheet, profit and loss account and cash flow statement, with different names and one significant addition, which is the split of net assets by donor restriction.
Very small organizations filing the 990-N postcard are not required to file financial statements with the IRS, and should still produce them. A board cannot exercise financial oversight without them, and funders ask.
What is the difference between restricted and unrestricted net assets?
Unrestricted net assets, formally net assets without donor restrictions, can be spent on anything within your mission. Restricted net assets are committed by a donor to a particular purpose or time period, and that restriction is binding once you accept the gift.
This is the most important line on the statement of financial position. An organization can hold a large total balance and be unable to pay salaries, because most of it is restricted to a programme.
When you spend against a restriction, the amount is released from restriction, moving between the two columns on the statement of activities. That entry is manual in most accounting software and is frequently forgotten.
What is a statement of functional expenses?
A table allocating every expense across three functions: programme services, management and general, and fundraising. It is required for organizations filing the full Form 990.
Direct costs are assigned to the function they serve. Shared costs are allocated on a documented basis, commonly time records for salaries, square footage for occupancy and headcount for shared services.
Decide your allocation basis once and apply it consistently. An auditor will ask how you arrived at the split, and an allocation nobody can explain looks arbitrary.
Build your chart of accounts around these three functions from the start. Retrofitting the split after a year of transactions means reallocating everything by hand.
Do small nonprofits need audited financial statements?
Not usually, and it depends on three things rather than on your own preference.
Your state may require an audit above a revenue threshold, commonly tied to charitable solicitation registration, and those thresholds vary widely by state.
A funder or lender may require one in writing. Read the agreement before signing.
Organizations expending federal award money above a threshold must have a Single Audit, which is a more demanding exercise.
If nothing requires it, an audit is a purchase. For an organization under a few hundred thousand dollars with straightforward funding, the same money spent on competent bookkeeping and a disciplined monthly close buys more actual financial control.
Where can I find examples of nonprofit financial statements?
They are public. Every organization filing a full Form 990 or 990-EZ discloses its financial information, and three consecutive years must be available for public inspection.
ProPublica Nonprofit Explorer holds these free and searchable. Many organizations also publish audited statements directly on their websites, often on an about or financials page.
The most useful examples are not the largest organizations but three or four doing similar work at a similar size to yours. Pull three years each and you will learn more about what is normal for you than any national benchmark will show.
What is the difference between a statement of activities and a profit and loss?
The arithmetic is the same and the presentation differs in two ways that matter.
A statement of activities is presented in columns by restriction, so a reader can see how much of the year's revenue arrived with strings attached.
Its expenses are presented by function, meaning programme, management and general, and fundraising, rather than by nature alone. A business profit and loss typically presents expenses by nature: salaries, rent, marketing.
The bottom line is called change in net assets rather than profit, and there is no distribution to owners because there are no owners.
How often should a board see financial statements?
At every board meeting, and monthly to the treasurer or finance committee.
What the board needs is not only the statements but a comparison: actual against budget, with an explanation of any material variance. A statement without a comparison tells a director what happened and not whether it was expected.
Three things worth putting in front of the board each time: unrestricted net assets, months of operating expenses those would cover, and any line materially over or under plan.
A board that receives statements and never discusses them is not exercising oversight, and duty of care applies to directors regardless of whether they read the papers.
Can we prepare financial statements ourselves?
Yes, for internal and board use, and many small organizations do.
Where you need external assurance, a funder requiring statements, a lender, or a state audit threshold, an accountant must be involved and the level required varies from compilation through review to audit.
Two things make self-prepared statements reliable. A chart of accounts built around the Form 990 functional categories from the start, so the functional expense split is an export rather than a reconstruction. And a monthly bank reconciliation that someone other than the person entering transactions reviews.
Get the setup checked by a nonprofit-experienced accountant once, at the beginning. It is a few hours that determines what you can report for years.
This is reference information, not legal or tax advice. Rules vary by state and change over time. For a decision that carries real consequences, check the current text at irs.gov or your state registry, and talk to a nonprofit attorney or CPA.