Exploring The Statement of Activities: A Beginner’s Guide

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A Statement of Activities, also called a Profit & Loss Statement, is a financial report that shows how much a nonprofit organization earned or spent over a period of time, typically one year. The statement can be used to track the organization’s progress and make sure it is meeting its financial goals.

Reading a Statement of Activities can be helpful for understanding a nonprofit’s overall financial picture. This guide will explain what a Statement of Activities is and the key components in it.

What is a Statement Of Activities in a Nonprofit

Out of the four most common financial statements in a nonprofit, the Statement of Activities, also known as the Profit & Loss (P&L), is the broadest. The P&L covers all the organization’s programmatic, fundraising, and administrative expenses incurred during the period. The statement also reports all the revenue generated during the period, regardless of the source.

The P&L is important because it provides a high-level overview of how much money the nonprofit is bringing in and where it is being spent. This information can be used to make decisions about where to allocate resources and how to improve the organization’s financial health.

How To Read A Statement Of Activities

There are three key areas to understand when reading a Statement of Activities: purpose, components, and terms. Let’s dig a bit more into each one.

Purpose

The first step in reading a Statement of Activities is to understand its purpose.

A Statement of Activities shows whether an organization made a profit or a loss during a period of time. It is a financial snapshot that can be used to track the organization’s financial progress.

This report is helpful for nonprofits because it provides a clear picture of how the organization is generating and using its resources to further its mission.

Components of the Statement of Activities

The second step is to understand the components of a Statement of Activities.

There are three main sections: revenue, expenses, and net income.

Revenue : How Much Money You Received

Revenue is the money coming into the organization. It can be from any number of sources. We typically break revenue into two categories; contributed and earned.

Contributed revenue (Contribution or Support) is derived from supporting sources like: donations, grant, and special events.

Earned revenue comes from activities your organization performs and therefore has earned. These source include:

• Program fees
• Membership dues
• Fee-for-service/Contracts
• Ticket Sales
• Investment Income

Restricted vs. Unrestricted Revenue

Revenue is broken down into two categories in order to comply with GAAP guidelines:

1. Unrestricted
2. Restricted

Unrestricted revenue is money that can be used for any purpose. These are monies an organization uses to pay bills.

Restricted revenue is money that can only be used for specific purposes or at a specified time. It is not available to pay bills.

For example, a grant for a new playground would be considered restricted revenue as the funds can only be used for expenses for the new playground.

A donor could give a single donor that is to equally be split across 3 years. We consider that there is a time restriction on the funds allowing only 1/3 of the donation to become unrestricted in a given year.

It is important to see the distinction between restricted and unrestricted as only unrestricted revenue can be used to pay bills. When a restriction is satisfied, those monies are moved from restricted to unrestricted and then used for expenses.

This movement can be seen in the “Net Assets Release From Restriction” line of the Statement of Activities

Expenses

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