What are the financial reporting requirements for nonprofit accounting?

A nonprofit organization issues a slightly different set of financial reports than reports generated by a for-profit entity. One of the reports is different from non-profit organizations. Although non-profit companies are not legally required to issue annual financial reports. Still, many nonprofit managers realize the added value that annual reports can offer government officials, donors, and staff. The financial statements will explain the achievements of the organization and its effectiveness in managing its earnings and liabilities. Some students need help with international finance homework. These reports also allow nonprofit agencies to align their reporting of monetary transactions with those seen in the for-profit arena.

IRS Form 990

The IRS Form 990 is the most important financial disclosure a nonprofit organization will file, at least according to the national government. Nonprofit organizations that obtain tax-exempt status use Form 990 to provide reports on their operations, income, and expenses to the Internal Revenue Service. As tax-exempt entities, nonprofit organizations do not need to collect taxes on income related to the fulfillment of their objectives. However, with other events such as bake sales, rummage sales, and other activities not specifically related to fundraising needs, these organizations are liable for ‘unrelated business income tax.’

State reports

Although the national government decides whether or not a charity requires tax exemption, its local offices grant the entity non-profit status. States also require nonprofit organizations to report their charitable contributions, grant receipts, and administrative expenses to the appropriate office. The standards developed by the American Institute of Certified Public Accountants must be followed by these reports (AICPA). These standards are also known as the Commonly Agreed Accounting Principles. That turns financial data into a context known to finance experts.

Statement of functional expenses

The operating expense statement, as the name implies, lists expenses by purpose, such as program expenses, operating expenses, and fundraising expenses. This report also lists costs by form, such as salaries and pensions, rent and electricity, and so on, going one step further. A matrix or table is typically the presentation. The division informs readers of this financial report of the balance your nonprofit organization has in supporting services and retaining a workforce, including auditors, board members, or potential donors. On the one hand, the administrative costs must not be excessively disproportionate to the financing of the programme.

On the other hand, the organization’s funding cannot be reduced so much that it cannot hire trained and qualified workers. Expenses can be two or three classes at the same time running. In this situation, it is necessary to evaluate a relative breakdown and allocate costs proportionally in each category appropriately.

Statement of financial position

The budget statement report for a nonprofit organization is similar to the income statement for a for-profit corporation. The balance sheet shows your assets, liabilities, and equity (Assets – Liabilities = Equity) in a for-profit company. The word “net assets” replaces “equity” for a nonprofit organization, since the managers of a nonprofit company do not have an ownership interest (Assets – Liabilities = Net Assets) in their agency.

Declaration of Activities

Nonprofit organizations use a Statement of Operations to illustrate the connection between income and expenses rather than the income records of for-profit corporations. The discrepancy between sales and expenses reflects a decrease in the organization’s net assets. Non-profit entities are entitled to have their sales totals exceed their costs. Federal and state regulations require organizations to redirect these positive improvements in net assets toward their fundraising activities.

Statement of cash flows

The cash flow statement shows a picture of income coming in and going out over a given period of time, be it a month, a quarter, a year, or produced during a defined period on demand. Students also search the internet for international finance assignment topics. Depending on the nonprofit organization’s cash flows, the statement of cash flows usually contains up to 3 parts. This indicates the total assets of most nonprofit organizations from:

  • Operational activities: (such as unlimited funds received from fundraising operations or cash premium charges)
  • Investing activities (such as costs or gains attributable to the acquisition or sale of equipment or other long-term assets)
  • Financing activities (such as proceeds from bond issuance or redemption)

annual report

Nonprofit organizations also provide important financial details that are not included in basic financial reports. Join the annual report that will serve to convey in greater depth the economic stability of the company. Material that applies to the annual report may include:

  • Documents of attendance at fundraising or community activities, recognizing that substantial attendance could indicate potential economic development, particularly if a new group of donors has been established.
  • Funding lists and your donation rate
  • The discussion of the project or the events of the past year, achievements in advocacy, volunteer assistance, etc.


Here in this article, we have explained the main financial reporting requirements for non-profit accounting. Following this article should help you better understand this concept.

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