Non-profit organizations play a crucial role in society by serving the community and advancing various causes. To maintain transparency and accountability, non-profits are required to prepare annual financial statements that provide an overview of their financial activities. Understanding these financial statements is essential for donors, stakeholders, and the general public to assess the organization’s financial health. Here are detailed examples of common annual financial statements for non-profits:
1. Balance Sheet
The balance sheet, also known as the statement of financial position, provides a snapshot of the organization’s financial position at a specific point in time. It includes assets (such as cash, investments, and property), liabilities (such as loans and accounts payable), and net assets (the difference between assets and liabilities). The balance sheet demonstrates the organization’s financial solvency and shows how its assets are funded.
2. Income Statement
The income statement, also known as the statement of activities, shows the organization’s revenues and expenses over a specific period, typically a fiscal year. It details the sources of revenue, including donations, grants, program fees, and investment income, as well as the expenses incurred to carry out the organization’s mission. The income statement helps assess the organization’s financial performance and whether it operates within its budget.
3. Statement of Cash Flows
The statement of cash flows provides a summary of how cash flows in and out of the organization during a specific period. It categorizes cash flows into three main activities: operating activities (day-to-day transactions), investing activities (acquisition and disposition of assets), and financing activities (sources of funds). The statement of cash flows shows how the organization manages its cash resources and its ability to meet financial obligations.
4. Statement of Functional Expenses
The statement of functional expenses breaks down the organization’s expenses by function (such as program services, management and general, and fundraising) to provide transparency on how resources are allocated across different activities. This statement helps donors and stakeholders understand how the organization distributes its funds to support its mission and programs.
5. Notes to the Financial Statements
The notes to the financial statements provide additional information and details about the organization’s financial activities, accounting policies, significant transactions, and other relevant disclosures. These notes help clarify information presented in the financial statements and provide context for stakeholders to better understand the organization’s financial performance and position.
Annual financial statements are essential tools for non-profit organizations to communicate their financial health and stewardship of resources to stakeholders. By providing detailed examples of common financial statements such as the balance sheet, income statement, statement of cash flows, statement of functional expenses, and notes to the financial statements, non-profits can enhance transparency and accountability in their financial reporting. Understanding these financial statements empowers donors, funders, and stakeholders to make informed decisions and support organizations that align with their values and goals.
