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Financial Reporting for non-profit organizations can be complex. Navigating what you should include in the presentation, how to prepare it for the board members, and how to hold your non-profit accountable for where the funds are coming from can be complicated. Here are a few pointers on the best things to include, and how to differentiate between different types of funds:
The main financial reports that should be included at your board meeting are the income statement, the balance sheet, and the budget. The income statement shows the income and expenses as compared to the budget. The balance sheet gives a big picture of your assets and liabilities. Lastly, your budget, which should be approved annually by the board members before the fiscal year starts. Including this in every meeting will give an understanding of how the company is doing compared to the allocated budget.
There are two different kinds of assets that must be reported to the board members. The two categories are assets “without donor restriction” and assets “with donor restriction.” Donors are able to place restrictions on the purpose or the time period in which their donation is allowed to be used. These restrictions can make non-profit financial statements complicated.
If you are a non-profit organization that receives a donation that is specifically intended to use at a later date, your accounting system must be able to display that the money will not be used until the intended date.
If you are moving funds from restricted assets to unrestricted assets it is “releasing funds from restriction.” There should be a line called “Revenue Released from Restriction.” This means that the donation has either been used for the intended purpose or within the designated time period.
Sometimes non-profits receive donations that are intended to be held forever — for example, scholarship funds or endowments. The purpose behind these funds is to create a pool of money that allows for income through investment. Nonprofits are able to use the earnings from the invested assets, but must keep the original donation forever, called “in perpetuity.”
Nonprofits must ensure that their funds, restricted or unrestricted, are reported in a clear, understandable way. It must be clear which funds contain a donor restriction and which funds are without donor restrictions.
Need help understanding your financial reporting? Contact us so we can help! We also offer outsourced accounting services for companies looking to outsource their accounting department.
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