Nonprofit Financial Statements Explained: The Core Set

Nonprofit financial statements present an organization's financial position, activities, cash flows, and spending by function in one standard set. Numetix prepares the ledger so each one ties to the others. This guide explains what each statement answers, what is required, and how a board should read them.

QUICK ANSWER: WHAT FINANCIAL STATEMENTS DOES A NONPROFIT PREPARE?
A nonprofit prepares a statement of financial position, a statement of activities, and a statement of cash flows.
It must also show expenses by function and by nature in one place, which many organizations present as a separate fourth statement.
Each statement answers a different question, so a board needs all of them to judge financial health, liquidity, and how much goes to mission spending.

Numetix is the expert-led, AI-powered, human-in-the-loop bookkeeping layer for nonprofits and other founder-led organizations, so ledgers, grants, and restricted funds are prepared by software and reviewed by a named person. The sections below explain each statement, what is required, and how a board should read them.

What are the core nonprofit financial statements?

Statement	Question it answers	Key feature
Statement of financial position	What does the organization own and owe?	Net assets with and without donor restrictions
Statement of activities	What changed in net assets this period?	Revenue and expenses by restriction class
Statement of cash flows	Where did the cash come from and go?	Shows why a surplus is not the same as cash
Expenses by function and nature	How much went to programs and support?	Program, management, and fundraising columns

The financial statements glossary entry covers the general idea. The nonprofit versions differ mainly in how they treat donor restrictions.

What does the statement of financial position show?

It is the nonprofit's balance sheet. It lists assets and liabilities, and the difference is net assets. FASB's 2016 update combined the older three classes into two: net assets with donor restrictions and net assets without donor restrictions (Journal of Accountancy summary of ASU 2016-14). Our guide to net assets explains the split.

What does the statement of activities show?

It reports revenue, expenses, and the change in each class of net assets for the period. It looks like an income statement but it separates money that donors restricted from money the board can use freely. Our comparison of the statement of activities and the income statement shows why the bottom line means something different.

What does the statement of cash flows show?

It tracks cash from operating, investing, and financing activities. This is the statement that explains how a nonprofit can report a surplus and still run short of cash, for example when grants are recognized before the money arrives. The SEC's beginners' guide describes the cash flow statement as a report of the cash coming in and going out during a period (SEC beginners' guide to financial statements).

Is a statement of functional expenses required?

The analysis is required, but a separate statement is not. FASB's 2016 update requires all nonprofits to present expenses by both natural and functional classification in one place, which can be the statement of activities, a separate statement, or the notes (Journal of Accountancy summary of ASU 2016-14). Many organizations choose the separate statement because it is clear, which is why people often say a nonprofit has four statements. Our guide to functional expense allocation explains how the columns are built.

How should a board read the statements?

Start with the statement of financial position to see liquidity and net assets without donor restrictions.
Use the statement of activities to see whether restricted money is being released as planned.
Read the cash flow statement next to the budget, not apart from it.
Check that program spending in the functional analysis matches the organization's stated mission.
Confirm that every statement ties to the same ledger totals.

Our guide to the monthly board financial reports shows how a monthly packet puts these views on a few pages.

Frequently asked questions

Do nonprofits have a balance sheet?

Yes, but it is called the statement of financial position. It lists assets, liabilities, and net assets, and it splits net assets into those with and without donor restrictions. It answers the same question as a for-profit balance sheet: what the organization owns and owes at a point in time.

What is the difference between net assets and equity?

Net assets are the nonprofit's version of equity. They are assets minus liabilities, but they are split by donor restriction rather than by owner. Nobody owns a nonprofit, so there is no owner equity. The split tells readers which money the board can spend freely.

How often should a nonprofit produce financial statements?

Monthly for internal use, and annually for external reporting and audit. A monthly statement of financial position, statement of activities, and budget comparison give the board time to act. The annual set follows the same structure, with the notes and the functional expense analysis added.

Numetix is the expert-led, AI-powered, human-in-the-loop bookkeeping layer that keeps books, controls, and reports reconciled with a named reviewer. See our bookkeeping services built for nonprofit organizations.