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The Financial Accounting Standards Board (FASB) is the the authoritative entity that governs over the guidelines for accounting. They dictate the principles to follow so that every nonprofit’s statements can be understood on an equal plane. FASB Statement No. 117 determines the specific information to be reported in financial statements and how to report it.
Financial Statements for Nonprofits Required by the FASB
All nonprofits should provide an exhaustive set of financial statements which includes reporting on assets, liabilities, net assets, revenues, expenses, gains and losses.
The statements are as follows:
- Statement of Financial Position: This is also known as the Balance Sheet. It is used to give a comprehensive picture of a nonprofit’s finances.
- Statement of Activities: This reveals how the net assets of the nonprofit have increased or decreased.
- Cash Flow Statement: This signifies how the nonprofit’s cash position has fluctuated. It is the same statement required for the for-profit companies. it must include net cash from operating activities, financing activities, and investing activities.
- Operating Activities-This is the change of cash for all other areas not covered in financing and investing activities.
- Financing Activities-This is the amounts received from long-term borrowing and any repayments.
- Investing Activities– This is the amounts spent to purchase long-term assets or the sale of them.
- Statement of Functional Expense: This statement is not required for all nonprofits but it is encouraged. Currently, it is mandatory for voluntary health and welfare organizations. The purpose of the statement is to demonstrate by line item and category the organization’s specific expenses. This is, in essence, a statement categorized by function of the expense like programming and fundraising and by the nature of the expense like rent, printing, salaries etc. Nonprofit accounting software is set up to help generate this statement with its specific expense classifications.