How To Report Revenues Of A Not-For-Profit Organization

In the past, nonprofit organizations were required to report many details about their finances in order to satisfy regulatory requirements. Since December of 2017, most nonprofit organizations have had to record information differently because the FASB (Financial Accounting Standards Board) changed the required details that need to be reported on their financial statements.

In some cases, this has been perceived as a benefit since it eliminates some redundant disclosures and reduces data overload. However, there are still certain disclosures that should be examined closely, such as liquidity disclosures, which is where CPAs that specialize in nonprofit accounting can step up and offer sound advice on how best to manage risks related to liquidity.

Types Of Reportable Net Assets

Nonprofits used to divide their funds by one of three main asset classes: unrestricted assets, temporarily restricted assets, and permanently restricted assets. As of 2017, those asset classes have been reduced to two categories. Restricted assets are now referred to as assets with donor restriction. The amounts reported as unrestricted assets should now be considered as assets without donor restrictions, and only two residual equity accounts are needed for the Balance Sheet.

Nonprofits are typically required to provide information about functional expenses, which is displayed in a spreadsheet with categories such as operational or program expenses. The way categorical items are listed on a nonprofit's Balance Sheet will, by design, explain their function to the organization.

Statement Of Activities

The Statement of Activities will show two columns for asset types plus an additional column to display the total. A Statement of Activities reports revenues based on the type and degree of donor restriction. Spending from an endowment may be permitted under certain circumstances, even if the endowment's value has fallen below its original cash levels. Information about expenses may be included on the Statement of Activities, in the footnotes to the statements, or in an annex.

Statement Of Financial Position

There haven't been significant changes to reporting on the Statement of Financial Position. Revenues are the largest component of assets and should be classified according to whether they have donor restrictions or not. To assure comparability over time for reporting purposes, revenues should not include receipts from investments.

Statement Of Cash Flows

Private not-for-profit organizations can choose between the direct or indirect reporting of cash flows, but those using the direct method of accounting for cash aren't required to reconcile net assets and cash transactions.

Fixed Assets

The previous version of the FASB standard allowed not-for-profit organizations to reclassify amounts to be unrestricted as those assets were depreciated, but in most cases, this is no longer allowed. Contributions received for fixed asset acquisitions, even with donor restrictions, will be recorded as net assets.

The nonprofit must report the resources as having been released from restriction when they are spent on new fixed assets and adjust the net asset value accordingly.

Investment Income

Nonprofits used to have to break out separate investment expenses from their returns. Now, they can report investment returns for investment-related expenses, which should make reports more straightforward.

Due to their charitable status and unique investment structure, it can sometimes be challenging for nonprofit organizations to understand the fees that are charged by external investment managers. This adjustment should ease reporting requirements by allowing nonprofit organizations to use commonly accepted accounting standards.

Conclusion

Nonprofit organizations need to provide a complete picture of their finances to donors, supporters, and the public by disclosing all their net assets and expenses. This includes reporting on fixed assets, investment income, and more.

It's important to follow the nonprofit accounting standards on all your financial reports. As such, nonprofits should do everything they can to stay up to date with changes in reporting requirements so they do not jeopardize their tax-exempt status. This will help organizations raise more funds by making them feel confident in how they spend the donations they receive.

This article is not meant to be a substitute for professional services. Always consult a CPA or trusted professional when seeking tax or accounting advice.