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What Are the Financial Reporting Requirements for Non-Profit Accounting?

What Are the Financial Reporting Requirements for Non-Profit Accounting?

A nonprofit organization issues a slightly distinctive set of financial reports than the reports generated by a for-profit entity. One of the reports is different from nonprofits. Even though nonprofit businesses are not lawfully required to issue annual financial reports. Still, many nonprofit organization managers realize the added value of annual reports can offer to government officials, donors, and staffers. The financial statements will explain the organization’s accomplishments and its effectiveness in managing its profits and liabilities. Some students need international finance assignment help. These reports also provide nonprofit agencies to adjust their ways of presenting their monetary dealings with these observed in the for-profit arena.

IRS Form 990

IRS Form 990. is the most important financial disclosure that a nonprofit organization will submit, at least as per the national govt. Non Profit organizations that obtain tax-exempt status use Form 990 to provide reports on their operations, income, and expenditures to the Internal Revenue Service. As tax-exempt entities, nonprofit organizations do not need to collect taxes for revenue related to the fulfillment of their goals. However, with other events such as bake sales, rummage sales, and other activities not specifically connected to the fundraiser’s needs, these organizations are responsible for ‘unrelated corporate income tax.’

State Reports

Although the national govt decides if a charity requires a tax exemption or not, its local offices award the entity its nonprofit status. States also mandate that nonprofit organizations disclose 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 observed by these reports (AICPA). These standards are also referred to as the Commonly Agreed Accounting Principles. That converts financial data into a context known by finance experts.

Statement of functional expenses

The declaration of operational expenditures, as the name suggests, lists expenses by purposes, such as program expenses, operating expenses, and expenses for fundraising. This report also lists costs by form, like wages and pensions, lease and electricity, and so on, taking it a step further. A matrix or table is typically the presentation. The division tells readers of this financial report the balance your nonprofit holds in supporting services and retaining a workforce, including auditors, board members, or prospective grantors. On the one hand, administrative expenses shouldn’t be grossly out of proportion to program funding.

On the other hand, Organizational funding could not be forced down so low that you can not recruit capable, skilled workers. Expenses may be in two or three classes at the same time in operation. In this situation, it is necessary to evaluate a relative breakdown and assign costs proportionally in each category properly.

Statement of Financial Position

The Budgetary Status Report for a nonprofit organization is close to the income statement of a for-profit corporation. The balance sheet displays its assets, liabilities, and equity (Assets – Liabilities = Equity) in a for-profit company. The word “net assets” replaces “equity” for a nonprofit organization since the administrators of a nonprofit company doesn’t have an ownership interest (Assets – Liabilities = Net Assets) in their agency.

Statement of Activities

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

Statement of cash flows

The cash flow statement shows an image of the income flowing in and moving out in a given timeframe, whether it is a month, a quarter, a year, or produced for a defined period on demand. Students also search on the internet for international finance assignment topics. Based on the cash streams of the nonprofit, the declaration of cash flows usually contains up to 3 parts. This indicates total assets for most nonprofits from:

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

Annual report

Nonprofits also provide important financial details that are not contained in basic financial reports. Join the annual report that will be used to convey the company’s economic stability in more depth. Material that applies to the annual report may include:

  • Documents of attendance for fundraiser or community activities, recognizing that substantial attendance could point to potential economic development, particularly if a new donor pool has been established.
  • Funding lists and their rate of donation
  • The debate of the project or the events of the past year, achievements in advocacy, voluntary assistance, and so on


Here in this article, we have explained the primary financial reporting requirements for nonprofit accounting. Following this article should help you to understand better about this concept.