Nonprofit Statement of Activities Explained: A Practical Guide for Executive Teams

You know those moments when your board asks, “How are we really doing?” The balance sheet might tell you what you have, but it doesn’t tell you how you got there. That’s where the nonprofit Statement of Activities comes in. Think of it as your financial story — a narrative of purpose, performance and accountability.

At James Moore, we’ve seen how this document is often misunderstood, even by seasoned nonprofit leaders. But getting it right matters. Whether you’re applying for grants, preparing for an audit or giving your stakeholders a clear picture of your impact, the Statement of Activities is a reflection of your mission in action.

We’re breaking it down: what it includes, what to watch for and how to use it to make stronger decisions.

What is the nonprofit Statement of Activities?

The Statement of Activities is a required financial statement that shows how a nonprofit’s net assets changed over a given period (typically a fiscal year). It’s the nonprofit equivalent of the income statement used in for-profit businesses, but it’s structured to reflect accountability to mission rather than profit margins.

This statement lays out your revenue, expenses, gains and losses, all grouped by whether they do or don’t have donor restrictions (more on that later). The report tracks how those funds move — for example, when a donor-restricted grant is received, used for its intended purpose and then released to the unrestricted category.

Here’s what the Statement of Activities generally includes:

• Support and revenue: Donations, grants, membership dues, program service revenue and investment income
• Expenses: Typically broken out by function (program, management and general, and fundraising)
• Change in net assets: The difference between revenue and expenses in each net asset class
• Releases from restrictions: When restricted funds are used according to the donor’s intent, they are moved into the unrestricted column

This structure is governed by FASB ASC 958, the accounting standard that sets the rules for nonprofit financial reporting. You can review those guidelines directly through the Financial Accounting Standards Board (FASB) for a more technical dive.

The Statement of Activities provides a comprehensive look at how your organization’s resources were acquired and used during the reporting period. It reveals whether your income is coming from sustainable sources and whether your expenses align with your mission-driven goals.

Understanding this document helps you avoid surprises. It also tells a clearer story to board members, potential funders and other stakeholders about the financial health of your organization.

 

 

Understanding Net Assets: Donor Restrictions and Functional Reporting

One of the most important parts of the Statement of Activities is understanding how net assets are classified. Unlike a for-profit company that reports profit or loss, nonprofits report changes in net assets. These net assets reflect how much money is available and how funds can be used.

There are two main categories:

Without donor restrictions: These are funds your organization use to support operations, programs and other purpose consistent with your mission. This includes most service revenue, general donations and grants that do not have a specific restriction.

Note, however, that these funds can still be designated internally by your board for specific uses (like reserves or endowments) or invested in property or equipment. So while the donor doesn’t apply restrictions, it doesn’t always mean the money can be used freely for any purpose.

With donor restrictions: These funds must be used as the donor directs. Restrictions can be based on time, purpose or both. For example, a foundation grant restricted for a capital campaign or a specific program would fall into this category.

When the funds are spent according to their intended purpose, they’re reported as “released from restrictions.” This transfer moves them into the “without donor restrictions” column to reflect that the donor-imposed restriction has been satisfied.

For example, a nonprofit receives a $500,000 grant restricted for a new youth outreach program. If the grant includes conditions that must be met before use (such as achieving certain milestones or securing matching funds), it is not recognized as revenue until those conditions are satisfied. If there are no conditions but the donor specifies how the funds must be used, the revenue is recognized when received and recorded as with donor restrictions. It is then reclassified as released from restrictions when the funds are spent on the specified program.

Functional reporting is another key component of this statement. It divides expenses into three categories: program services, management and general and fundraising. This breakdown tells your board and funders how resources are being used to fulfill your mission.

A well-prepared Statement of Activities communicates stewardship. It shows that your organization respects donor intent, maintains transparency and directs resources toward programmatic success.

Understanding these classifications helps ensure compliance with financial reporting standards and builds trust with donors and stakeholders. When presented clearly, this section of the Statement of Activities gives leadership the insight needed to make informed, mission-aligned decisions.

Statement of Activities vs. Income Statement: Key Differences

Many nonprofit leaders compare the Statement of Activities to a for-profit income statement. And at first glance, the two look similar; both show how money flows in and out of the organization during a period. However, their purposes and structures are quite different.

A for-profit income statement focuses on profitability. It reports revenue, expenses and net income to show whether the company created value for its owners or shareholders.

A nonprofit Statement of Activities, by contrast, focuses on accountability. It demonstrates how funds are used to advance the organization’s mission. Every dollar is linked to an outcome rather than to profit.

Here are a few of the most significant distinctions:

• Purpose: The income statement evaluates profit. The Statement of Activities evaluates mission effectiveness and stewardship.
• Revenue sources: For-profits rely on sales. Nonprofits rely on contributions, grants, membership dues, and program service fees. Each of these must be classified accurately according to donor intent and restrictions.
• Net assets vs. retained earnings: A business reports retained earnings as cumulative profit. A nonprofit reports net assets, which represent cumulative surpluses or deficits categorized by restrictions.
• Terminology: Instead of “sales” or “profit,” you will see “support,” “revenue” and “change in net assets.”

This accountability structure reflects the heart of nonprofit operations. It ensures the organization fulfills its commitments to donors and the community it serves. For more technical guidance on nonprofit financial reporting standards, visit the National Center for Charitable Statistics (NCCS).

 

 

Real-world reporting: what nonprofits should watch for

Reading a Statement of Activities is one thing. Preparing it accurately is another. We’ve seen nonprofits make small reporting missteps that lead to big problems. Whether it’s during a board review, grant application or annual audit, these issues can affect how stakeholders view your organization’s integrity and financial health.

Here are some common mistakes to avoid:

Mixing restricted and unrestricted funds

This often happens when organizations rush to meet deadlines or lack proper tracking systems. If restricted donations are misreported as unrestricted, you risk breaking donor agreements and misrepresenting your financial position.

Forgetting to record releases from restriction

When you use restricted funds as intended, the transaction must be recorded as both a decrease in net restricted assets with donor restrictions and an increase without donor restrictions. Skipping this step understates your operating revenue and overstates remaining restrictions.

Misclassifying revenue sources

Not all contributions are equal. Government contracts, for example, may be exchange transactions rather than donations, depending on the terms. Misclassifying these can affect both tax reporting and accounting accuracy.

Improper expense allocation

Many nonprofits struggle with functional expense reporting, especially when staff members wear multiple hats. Make sure to document time and resources used across program, management and fundraising categories.

Incorrect treatment of in-kind donations

Donated services or materials must be recognized when they meet specific criteria:

• They create or enhance a nonfinancial asset; or,
• They require specialized skills, are provided by individuals possessing these skills, and would otherwise need to be purchased.

For example, if you receive pro bono legal services or donated equipment, those need to be reported at fair value when applicable under GAAP.

Accurate reporting starts with having the right systems in place. A clear accounting policy, routine internal reviews and professional oversight can help prevent these errors.

In an increasingly competitive funding environment, funders, rating agencies and major donors expect clear, consistent financials that tell the full story. The Statement of Activities is a crucial way to demonstrate your nonprofit’s discipline and accountability.

How the Statement of Activities supports strategic decision making

The Statement of Activities is more than just a compliance document. When used correctly, it becomes a roadmap for decision making. It can tell you if your funding is sustainable, your programs are cost-effective or your mission is at risk due to structural deficits.

Many organizations rely on this statement to guide important decisions, such as:

Strategic budgeting

Comparing revenue and expenses by restriction type helps leadership determine whether core programs are truly self-sustaining or dependent on donor support. This insight is essential when building next year’s budget or exploring new programs.

Donor stewardship

Transparent reporting of donor-restricted funds builds trust. When donors see their gifts were used as promised, they are more likely to give again and to recommend your organization to others.

Board engagement

A well-organized Statement of Activities allows board members to quickly understand where the organization stands. It gives context to discussions around resource allocation, staffing and long-term planning.

Grant applications and compliance

Funders often require this statement to evaluate financial strength and program effectiveness. Inaccuracies can delay funding decisions or cause reputational harm. Accurate reporting shows you are prepared to manage larger grants responsibly.

Planning for future capital or program investments

Want to expand your reach or open a new facility? The Statement of Activities helps you analyze net income trends, fundraising potential and unrestricted cash flow. These are key indicators when deciding how and when to scale.

A clear and consistent Statement of Activities gives you the financial visibility to lead with confidence. For additional strategic guidance, resources like Nonprofit Quarterly offer examples and best practices from across the sector.

The financial report that shows what really matters

The Statement of Activities is more than a set of numbers. It tells the story of your nonprofit’s purpose, performance and financial stewardship. Understanding this statement gives your leadership team the clarity it needs to make better decisions, report confidently to funders and align resources with your mission.

If your current financial reporting feels like more guesswork than guidance, it might be time to reassess your approach. At James Moore, our nonprofit Accounting and Controllership professionals help organizations like yours prepare clear, accurate and actionable financials that support compliance and long-term growth.

Contact a James Moore professional today to see how your Statement of Activities can become a more strategic part of your organization’s success.

 

 

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