Nonprofits must include a balance sheet when applying for federal tax exemption and filing taxes. Balance sheets share your nonprofit’s liquidity and how much cash is available and can be an excellent way to track how your organization’s financial status has changed in past years. Read more to learn what to include and view different samples you can use.
How do you prepare a nonprofit balance sheet?
A nonprofit balance sheet is also known as a statement of financial position. This is one of the required financial reports for nonprofits.
Balance sheets are also an excellent way to track how your organization’s financial status has changed in past years.
This article shares what you should include in a nonprofit balance sheet and provides a sample of how to write your own.
Nonprofit balance sheets list your organization’s assets, liabilities, and net assets. Nonprofits must provide this information when filing Form 1023 to apply for 501c3 tax exemption with the Internal Revenue Service (IRS).
Here’s an example of Wellington Zoo’s annual report (page 45) that includes its statement of financial position or balance sheet. This should give you an idea of how one looks.
Your nonprofit must also include your balance sheet with a snapshot of your organization’s finances at the beginning and end of the year when filing annual taxes with Form 990.
If your organization uses an accrual method accounting practice, nonprofit balance sheets are more accurate. Accrual methods match expenses to revenue when it’s generated. In nonprofits, this comes up with events. Funds are related to the day of the event instead of when funds actually arrive.
If your organization uses cash-based accounting, nonprofit balance sheets may not provide an accurate snapshot.
A nonprofit balance sheet is essential for auditing purposes. Sharing how your nonprofit’s financial status has changed gives board members, donors, and foundations a better overview of the health of your nonprofit.
Nonprofit balance sheets include an organization’s assets, liabilities, and net assets. You get your organization’s net assets when you subtract your nonprofit’s liabilities, or what you owe, from your assets.
Assets (what you’re owed) – Liabilities (what you owe) = Net Assets
Nonprofit assets are what your organization receives or is owed. Your balance sheet will split assets by current assets, fixed assets, and others.
Current assets include what is in your bank account, your investment accounts, and petty cash. It also includes any prepaid expenses and merchandise you own for future use.
Fixed assets are your nonprofit’s furniture, equipment, and improvements made to a facility. Fixed assets can also include accumulated depreciation, the amount your fixed assets have decreased in value.
Finally, other assets include any long-term investments of your nonprofit’s unrestricted or temporarily restricted funds. Many nonprofits that offer scholarships will invest scholarship funds for future use. Nonprofits may also invest restricted funds that they can’t use for their nonprofit’s operations.
If you’re an educational nonprofit or one that offers scholarships, you may want to check out the below financial report from Heliconia Scholarship Foundation.
Now we can move on to liabilities or what your nonprofit owes. The first and most apparent liabilities are your organization’s operational costs. These are current liabilities and must be covered immediately.
Current liabilities can include your organization’s accounts payable, accrued expenses, deferred revenue, refundable advances, lines of credit, and current loan payments.
To make this easier to understand:
Long-term liabilities are exactly how they sound. These are expenses that aren’t due in the next twelve months. Examples of these include –
After subtracting your nonprofit’s liabilities from assets, you get your net assets. As you list net assets, you must also split them into unrestricted, temporarily restricted, and permanently restricted funds.
When viewing your balance sheet, your assets are your organization’s unrestricted income. Liabilities include all expenses. Net assets show your organization’s deficit and decrease.
Here’s an example (page 4) of a complete statement of financial position or balance sheet of a nonprofit to show how yours can look.
We have created a sample balance sheet to help you create one for your organization. You can also use it as a template to add in extra information, change existing asset details, and calculate net assets.
Click here to download it for free.
A balance sheet or statement of financial position gives board members, donors, and foundations a clear view of your organization’s available cash and where you are as compared to past years.
It’s best to hire an in-staff or freelance accountant to create these reports, but if funds are unavailable, we hope this article helps you get started. Check out other articles we’ve provided on nonprofit accounting and accounting software.
For more articles on starting a nonprofit, tax filing, best states to incorporate a nonprofit, fundraising, donor management, and more, go to our Nonprofit Blog. Subscribe to our newsletter if you’d like us to send our best resources directly to your inbox every month.
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Nonprofit balance sheets give you an overview of your organization’s financial health. You can see what is owed, what you owe, and how much cash you have on hand.
Nonprofits should include balance sheets in their organization’s annual reports and when filing Form 990 with the IRS.
Nonprofits most often need balance sheets when filing annual taxes, applying for grants, and appealing to major donors. It’s also an excellent tool to keep board members informed about the financial status of your organization.
The IRS requires an actual or projected financial snapshot of your nonprofit when filing for 501c3 status. When filing Form 1023, you must include your organization’s balance sheet with a list of your nonprofit’s assets, liabilities, and net assets.
You’ll also need to have a balance sheet and a snapshot of your organization’s finances at the beginning and end of the year when filing IRS tax form 990.
Your balance sheet can be public and included in the annual report.
Disclaimer: By sharing this information we do not intend to provide legal, tax, or accounting advice, or to address specific situations. The above article is intended to provide generalized financial and legal information designed to educate a broad segment of the public. Please consult with your legal or tax advisor to supplement and verify what you learn here.
Kristine Ensor is a freelance writer with over a decade of experience working with local and international nonprofits. As a nonprofit professional she has specialized in fundraising, marketing, event planning, volunteer management, and board development.
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Kristine Ensor