If you have ever tried to explain your nonprofit’s finances to a new board member and watched their eyes glaze over, you are not alone. Financial statements can feel dense and technical. But the statement of activities is actually one of the more readable reports your organization produces, once you know what you are looking at.
This guide breaks down what the statement of activities is, what goes into it, how it differs from a for-profit income statement, and why it matters for your organization’s credibility and compliance.
What Is a Statement of Activities?
The statement of activities is a core financial statement required of all nonprofit organizations. It is sometimes called the nonprofit income statement or profit and loss statement, though neither term is technically accurate since nonprofits do not operate for profit.
Its purpose is to show what revenue your organization brought in during a specific period, what expenses were incurred, and how net assets changed as a result. In simple terms, it answers the question: did the organization’s financial position improve or decline over this period?
The statement of activities covers a specific time period, typically a fiscal year, and is paired with other required financial statements including the statement of financial position (balance sheet), statement of cash flows, and statement of functional expenses.
What Does a Nonprofit Statement of Activities Include?
Unlike a for-profit income statement that simply tracks revenue and expenses, the nonprofit version is organized around net asset classes. This is because nonprofit funding comes with different restrictions attached to it.
The statement of activities typically includes:
Revenue and Support
- Contributions and donations (unrestricted and restricted)
- Grants from government or private foundations
- Program service revenue
- Membership dues
- Investment income
- Special event revenue
- In-kind contributions
Expenses
- Program services expenses (broken down by program)
- Management and general expenses
- Fundraising expenses
Net Asset Changes
- Without donor restrictions
- With donor restrictions
- Total change in net assets
- Net assets at beginning of period
- Net assets at end of period
The separation between restricted and unrestricted net assets is one of the most important features of this statement. It shows funders and auditors that restricted funds were tracked separately and used only for their intended purposes.
How Net Asset Classes Work
This is the piece that confuses people most often. Nonprofit accounting under FASB ASC 958 organizes net assets into two categories:
- Net assets without donor restrictions: Funds the organization can use for any purpose. This includes most operating revenue, unrestricted donations, and transfers from released restricted funds.
- Net assets with donor restrictions: Funds that must be used for a specific purpose or within a specific time period. Grants with program-specific restrictions, endowment contributions, and multi-year pledges fall here.
When a restricted grant is spent on its designated purpose, it is released from restriction. This shows up in the statement of activities as a line item called net assets released from restrictions, which increases unrestricted net assets and decreases restricted net assets by the same amount.
Tracking these movements accurately is a core function of good nonprofit bookkeeping. If the releases are not recorded properly, the statement of activities will misrepresent your organization’s financial picture.
Why the Statement of Activities Matters
This report is not just an internal document. Several groups use it regularly to evaluate your organization:
Donors and Foundations
Major donors and foundation program officers review your statement of activities before making funding decisions. They want to see a reasonable ratio between program expenses and overhead, evidence that restricted funds are being spent appropriately, and overall financial stability.
Board Members
Your board has a fiduciary responsibility to oversee the organization’s finances. The statement of activities is one of the primary tools board members use to monitor performance against budget, catch unexpected variances, and fulfill their governance duties.
Auditors
If your organization undergoes an annual audit or a federal single audit due to government funding, the statement of activities is one of the core documents auditors review. Accurate and well-documented revenue and expense recording makes this process faster and less costly.
Form 990
The data in your statement of activities feeds directly into your Form 990. Revenue categories, program expenses, management costs, and fundraising expenses all appear on the 990 in similar form. If your statement of activities is accurate, your 990 preparation becomes significantly easier.
Common Mistakes Nonprofits Make
A few errors show up repeatedly when reviewing nonprofit financial statements:
- Mixing restricted and unrestricted funds in the same accounts
- Forgetting to record net assets released from restrictions when grants are spent
- Misallocating expenses between programs, management, and fundraising
- Not updating the statement monthly, so variances are caught too late
- Using a chart of accounts designed for for-profit businesses instead of fund accounting
Each of these errors makes the statement of activities less reliable. And when the statement of activities is unreliable, every financial decision made from it carries more risk.
How Non-Profit Books Keeps Your Statement of Activities Accurate
At Non-Profit Books, we specialize in fund accounting and nonprofit financial reporting. That means your statement of activities reflects accurate fund tracking, proper restricted release entries, and correct expense allocation, every month.
We work with nonprofits of all sizes, from small community organizations to multi-program operations with government grants. Whether you need ongoing bookkeeping support or a financial reporting cleanup, we are built specifically for this work.
Frequently Asked Questions
Q: What is a statement of activities for a nonprofit?
A: It is a financial statement that shows a nonprofit’s revenue, expenses, and change in net assets over a specific period. It is the nonprofit equivalent of an income statement.
Q: How is a nonprofit statement of activities different from a for-profit income statement?
A: The nonprofit version separates net assets into restricted and unrestricted categories to reflect donor restrictions, which for-profit statements do not need to track.
Q: How often should a nonprofit produce a statement of activities?
A: Monthly is best practice. Annual statements are required for the Form 990 and audit, but monthly reports help the board and leadership catch variances early.
Q: Does the statement of activities connect to Form 990?
A: Yes. Revenue and expense categories from the statement of activities are used directly to complete the financial sections of Form 990.
Q: What does net assets released from restrictions mean?
A: It means restricted funds have been spent on their designated purpose and are now reclassified as unrestricted. It is a normal entry that appears when grants are used as intended.
