Before you open a financial report, it helps to know what you want out of it. Most nonprofit leaders want to know how much money they have, where it came from and where it went, what they owe, and whether they can keep the work going next year. No single report answers all of this. That is why nonprofit financial statements come as a set, and each one covers a different part of the picture.
Some show what the organization has at a particular point in time. Others show what happened over a period of months. One focuses on cash, while another helps explain how much was spent on programs versus administration or fundraising.
The value comes from understanding what each statement is telling you and then looking at them together.
The 4 Statements at a Glance
| Financial Statement | Date or Period | What It Tells You |
| Statement of Financial Position | As of a specific date | What the nonprofit owns, owes, and has available |
| Statement of Activities | For a specific period | Revenue, expenses, and changes in net assets |
| Statement of Cash Flows | For a specific period | Where cash came from and where it went |
| Statement of Functional Expenses | For a specific period | How expenses are allocated across programs and operations |
1. Statement of Financial Position
The Statement of Financial Position is a snapshot of your finances on a specific date, usually the last day of the fiscal year. It shows what the organization has, what it owes, and what is left after those obligations are accounted for.
It brings together three main pieces:
- Assets: what the organization owns or controls, such as cash, pledges receivable, investments, property, and equipment
- Liabilities: what the organization owes, such as accounts payable, accrued expenses, loans, and deferred revenue
- Net assets: what remains after liabilities are subtracted from assets
The distinction between assets and cash is important here. A nonprofit may have significant assets on paper but not have the same amount available to pay expenses today. For example, a large pledge receivable is an asset, but it does not become cash until the donor makes the payment.
The same applies to liabilities. An organization may have enough assets overall but still have substantial obligations coming due in the near term. For leadership, this statement provides a starting point for understanding financial strength, liquidity, obligations, and the resources available to support the organization’s work.
2. Statement of Activities
Where the Statement of Financial Position is a snapshot, the Statement of Activities covers a stretch of time. It shows the organization’s revenue, expenses, and resulting change in net assets during that period.
Depending on the organization, revenue may come from several sources, including:
- Contributions and donations
- Grants
- Membership dues
- Program and service revenue
- Special events
- Investment income
Expenses then show what it costs to operate during the same period.
One point catches many teams off guard: revenue on this statement is not always money you can spend freely.
Gifts and grants often carry donor restrictions that limit how and when the funds can be used. A grant designated for a particular program, for example, cannot necessarily be redirected to cover an unrelated operating expense simply because the organization needs the cash.
Because of this, net assets are shown in two groups: with donor restrictions and without donor restrictions. Looking only at the total revenue figure can give an incomplete picture of how much flexibility the organization has.
The Statement of Activities also shows the change in net assets for the period. This includes the effect of contributions, expenses, and releases of donor restrictions. Some organizations show this as a separate statement, but it is commonly included within the Statement of Activities.
3. Statement of Cash Flows
Revenue and cash are different things.
A pledge recorded this year may not be paid until next year. A grant may be received in advance of the program it supports. An organization may also make a large payment for equipment or another asset that does not appear as an ordinary operating expense in the same way.
The Statement of Cash Flows tracks the actual movement of cash during the period and groups it into three categories:
- Operating activities: cash from donations, grants, program fees, and other regular activities, along with cash paid for salaries, supplies, vendors, and other operating costs
- Investing activities: cash spent on or received from long-term assets and investments
- Financing activities: cash received from loans, repayments, and similar financing transactions
This statement is particularly useful when the organization’s reported results and its cash position seem to tell different stories.
A nonprofit can report healthy revenue and still struggle to cover payroll next month. It could also show a deficit in one period while having enough cash reserves to comfortably meet its obligations.
The Statement of Cash Flows helps explain those differences. It gives leadership a better view of whether cash is moving into the organization at a pace that supports its day-to-day needs.
4. Statement of Functional Expenses
The Statement of Functional Expenses is particularly important in nonprofit reporting because it looks at expenses from the perspective of how the organization uses its resources.
It generally breaks expenses down in two ways: by their type and by their function.
For example, salary expense may be allocated across:
- Program services: the work that directly supports the organization’s mission
- Management and general: administration, finance, governance, and other general operating activities
- Fundraising: activities involved in raising contributions and maintaining donor relationships
This makes the statement more than a list of expenses. It helps show where organizational resources are being directed.
For example, an organization might spend $100,000 on salaries, but that number alone does not tell you how those salaries support the organization. The functional expense breakdown provides more context by showing how much relates to programs, fundraising, or general administration.
That information can be useful internally when evaluating spending and externally when responding to questions from donors, board members, grant makers, and other stakeholders.
It is also important to remember that a healthy nonprofit cannot eliminate administrative and fundraising costs altogether. Finance, technology, staff management, compliance, donor engagement, and other supporting activities all require resources. The purpose of the statement is to provide transparency into how those resources are being used.
Don’t Read These Statements in Isolation
Each statement is useful on its own, but they make the most sense when read together.
Think of them as different views of the same organization:
- The Statement of Activities shows the financial activity that took place during the period and how it affected net assets.
- The Statement of Financial Position shows the resulting financial position at a specific point in time.
- The Statement of Cash Flows shows what happened to actual cash.
- The Statement of Functional Expenses shows how expenses were allocated across programs, administration, and fundraising.
Take a simple example. Your Statement of Activities shows a surplus for the year, but the Statement of Cash Flows shows that cash has decreased. Looking at the Statement of Financial Position, you find that a significant amount of the year’s revenue is tied up in pledges receivable that have not yet been collected.
No single statement gave you the complete picture. Reading them together did.
That is why reviewing only one financial report can sometimes lead to the wrong conclusion. A strong revenue number does not necessarily mean strong cash flow. A large asset balance does not necessarily mean those assets are available for general use. And a high level of program spending does not, by itself, tell you whether the organization is financially sustainable.
The context comes from putting the statements together.
How Nonprofit Leaders Can Use These Statements
Financial statements become more useful when you connect them to the decisions you make throughout the year.
- Budgeting: Compare actual revenue and expenses with the budget to identify significant changes and understand what is driving them.
- Cash management: Look at cash balances alongside receivables and upcoming liabilities to get a more realistic view of near-term financial needs.
- Fundraising: Track contributions and grants against campaigns to connect fundraising activity with financial results. A fundraising software for nonprofits can make this easier to follow.
- Program planning: Use expense information to evaluate whether spending is keeping pace with program priorities.
- Financial oversight: Review significant movements in revenue, expenses, receivables, cash, or liabilities that may need further attention.
- Board reporting: Use the financial statements as the foundation for showing what has changed and where the organization may need to focus.
The goal is not for every nonprofit leader to become an accountant. It is to understand enough about the numbers to make informed decisions and know when something deserves a closer look.
Financial Statements Are Only as Good as the Information Behind Them
Producing these reports means pulling together a lot of moving parts: donations, grants, expenses, bank activity, program costs, and fundraising activity.
When that information sits across separate spreadsheets and systems, even a straightforward report can require significant manual work. Someone must collect the information, reconcile it, check for discrepancies, and make sure the final numbers agree.
That work can become particularly difficult as fundraising activity grows. More campaigns mean more transactions to track. More donors mean more payment records and gift information to reconcile. And when fundraising data and accounting data are maintained separately, finance teams may have to spend additional time making sure the two sides match.
Connected systems can reduce some of that work by allowing information to move between fundraising and financial processes instead of requiring teams to enter the same information more than once.
FundThrive, MentisSoft’s fundraising software for schools and nonprofits, captures donations and ties them to campaigns. It connects with FINACS, MentisSoft’s accounting and financial management software, so gifts can flow into the books as journal entries without re-keying.
FINACS also helps finance teams organize the underlying financial information needed to produce and review financial statements, giving them a more connected view of accounting activity, balances, and transactions.
You can read more about how the two work together in our post: The Missing Piece in Fundraising? It’s Finally Here—Power Up with FundThrive Fundraising Software.
Financial statements for nonprofits are more than a compliance exercise. They show what is happening with your organization’s resources, where those resources are going, and what may need attention.
When you understand what each statement is telling you and how the four fit together, financial reporting becomes much more useful for the decisions that matter.
Frequently Asked Questions About Nonprofit Financial Statements
How often should a nonprofit review its financial statements?
Nonprofits should review financial information regularly throughout the year rather than waiting until year-end. Monthly or quarterly reviews can help leadership identify changes in revenue, expenses, cash, receivables, and other areas early.
Are nonprofit financial statements different from for-profit financial statements?
Yes. Nonprofits use terminology and reporting formats that reflect their mission-driven structure. For example, nonprofits report net assets rather than shareholder equity, and their expenses are generally presented by both their natural classification and functional classification.
Why is it important to look at all four statements together?
Each statement provides a different part of the financial picture. Looking at them together helps explain how revenue and expenses affect net assets, how those resources appear on the Statement of Financial Position, how cash is moving, and where expenses are being allocated.
