Understanding Nonprofit Financial Statements
Every nonprofit board member is legally responsible for the financial oversight of the organization they serve. That responsibility starts with understanding your organization’s financial statements.
This guide introduces you to key concepts and terminology so you can engage with confidence in board discussions about your organization’s financial health.
What Are Financial Statements?
Financial statements are formal written records of your organization’s financial activities and position. They provide the information you need to identify your organization’s financial strengths and weaknesses.
Management is typically responsible for creating the statements, which are produced monthly for the month just ended as well as for the year to date. The year-to-date statements provide valuable reference points and allow the board to see how well actual results are following projected assumptions.
Key Terms: Assets, Liabilities, and Net Assets
The balance sheet, formally known as the Statement of Financial Position, shows you what your organization owns (assets), what it owes (liabilities), and what remains (net assets) at a specific moment in time.
Assets are everything an organization owns, typically listed by how quickly they can be converted to cash:
- Cash
- Accounts receivable (money owed to your organization)
- Promises to pay (promised or pledged contributions)
- Property, Plant, and Equipment (fixed assets)
Liabilities are everything your organization owes, listed in the order they need to be repaid:
- Accounts payable (unpaid invoices owed to vendors and suppliers)
- Accrued liabilities (estimated amounts owed, invoices not yet received)
- Current portion of long-term debt (due within the next 12 months)
- Long-term liabilities (debt due beyond 365 days, such as a mortgage)
Net assets are the difference between what your organization owns and what it owes. They can be unrestricted, meaning available for any use, or restricted when a donor places limits on their use. Restrictions can be temporary (met over time or when a purpose is fulfilled) or permanent (such as the principal of an endowment).
What Is an Income Statement?
If the balance sheet is a snapshot, the income statement is a report card. The income statement, formally called the Statement of Activities, reflects your organization’s revenues and expenses over time, whether monthly, quarterly, or annually.
It tells you whether revenue is going up or down and how much surplus remains after deducting what it costs to operate. That surplus can be used to grow your organization or pay down debt.
Want to go deeper?
The full primer, Welcome to Your Key Financial Statements, covers five key financial ratios, a sample annotated balance sheet, and a sample income statement with real numbers. It’s designed specifically for nonprofit board members.
101 Resource | Last updated: June 29, 2026
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