Gather round, it’s (not-so spooky) storytime–nonprofit accounting style! It might be the season of tricks and treats, but I promise you, reading your Statement of Activities doesn’t have to be scary. 👻
Can it be a bit tricky, though? Yes! That’s why I am here to share what it is and how it can be broken down and digested without getting the quintessential Halloween night stomach ache by taking too much in at once. What better way to explain than this coming from an experienced nonprofit accountant!
We all love a good story, and your Statement of Activities tells one. You just have to be sure you read the WHOLE thing AND not get spooked by a seemingly scary ending.
What is a Statement of Activities, Exactly
The Statement of Activities (SOA) is a report that is prepared on the accrual basis. It tells the story of the results of operating your nonprofit organization during a specified time period and is an indication of how much funds were raised or earned and how much was committed (in expenses) to operate the organization.
The SOA story begins by identifying the period of operation it covers, which is indicated at the top of the report. The time period is super relevant to how you will read the report – is it for the previous month, previous quarter or fiscal year to prior month?
Based on your fundraising and program delivery activities, the numbers you see may paint a shocking (and misleading) picture of the overall financial health of your organization. From a nonprofit accountant’s seat, you have to read it with your nonprofit’s activities in mind.
Pro tip: The period should cover whole months and should only include those months for which closing activities have been completed.
The accrual basis of accounting is essential for this report as it records activity regardless of whether the funds are received or disbursed. Much like a ghost story is often best told from the perspective of the one being haunted, the accrual basis is the proper point of view for these stories. Anything else will not provide an accurate or complete picture.
How to Present a Statement of Activities
Remember that tummy ache I mentioned before? We want to avoid that. The way I prefer to present an SOA, as a nonprofit accountant, allows my clients to get their whole bag of candy, but in a fully digestible way.
The presentation of the SOA that I prefer is one that typically has 4 columns:
- Activity without Donor Restriction
- Activity with Donor Restrictions
Let’s break that down a bit more.
In my experience, if you place too many accounts (as in too much information) here, it detracts from the real message and ultimately, how you interpret the end of the story. When I prepare SOAs I combine accounts into categories such as personnel, occupancy, and office to allow the eyes of the reader to take in all the numerical data.
Activity without Donor Restrictions
The purpose of the column of “activity without donor activity” is to document the true results of operations with the use of both unrestricted funds and funds released from restrictions. You can gain clarity on this by asking a simple question. “Are we meeting the operating expenses with sufficient revenue?”
Activity with Donor Restrictions
By contrast, the column of “activity with donor restrictions” documents the influx of newly restricted funds, its use or release for operations, and the remaining balances. Reading it right requires you to consider whether the restricted funds are being replenished at a reasonable rate for future use or is the organization making up for a potential shortfall in restricted funds by exceeding the “generating a surplus” funds in the unrestricted column.
If you are one of those people that skips to the end of the story to see how it ends, try to resist that temptation when reading your SOA. If you jump right to the total, you may get spooked by what you see. The other columns, or plot points of the story, are super important to understand the story as a whole.
That’s not to say the total isn’t important. It is! But just like reading only the ending of a story, it won’t make much sense without seeing what component parts got you there. The total column is an incomplete picture of the whole story which is best explained by dissecting the previous columns.
So there you have it. Your Statement of Activities is an invaluable tool that helps you make informed decisions about the financial well being of your nonprofit organization. With these tips, reading it won’t be a spooky experience.
Need help preparing or understanding your SOA? Lumix CPA’s nonprofit accountants can help! Contact us today and we will help you see the whole story, no scare tactics involved.