If you work at a nonprofit, chances are that financial statements will cross your desk in board packets, grant applications, and annual reports—even if finance isn’t officially part of your job. And yet, you may find yourself quietly wondering: Am I supposed to understand this?
At Three Notch’d, we believe that nonprofit financial statements are not just accounting documents. They’re part of your organization’s funding story. And with a little context, they’re far more approachable than they look.
This post is a practical guide for nonprofit staff who don’t have an accounting background, but want to better understand how their organization’s finances work. If that’s you, we’ve got you covered!
What Is a Nonprofit Financial Statement?
Most nonprofit organizations publish a set of financial statements as part of their annual report or audited financials. These statements follow nonprofit accounting standards and are designed to help readers understand financial health, sustainability, and stewardship. Generally speaking, there are three core nonprofit financial statements, and each answers a different question.
1. Statement of Financial Position
Where does the organization stand right now?
The statement of financial position is a snapshot of the organization’s finances at a single point in time—usually the end of the fiscal year. You might also hear it referred to as a balance sheet.
Statement of Financial Position documents show:
- What the organization has
- What it owes
- What remains after obligations are met
The basic equation is: Assets – Liabilities = Net Assets
Assets: What the Nonprofit Has
Assets are resources the organization uses to carry out its mission. They are listed from most liquid to least liquid.
Common nonprofit assets include:
- Cash and cash equivalents
- Grants or contributions receivable
- Investments
- Property and equipment
A helpful distinction:
- Current assets can be used or converted to cash within one year
- Fixed assets are long-term (buildings, land, major equipment)
Liabilities: What the Nonprofit Owes
Liabilities are debts or obligations the organization must pay.
Common examples include:
- Accounts payable
- Deferred revenue (money received for work not yet completed)
- Loans or long-term debt
Net Assets: What the Nonprofit has Left (With and Without Donor Restrictions)
Net assets represent what remains after liabilities are paid—and for nonprofits, restrictions matter.
- Net assets without donor restrictions
Funds the organization can generally use as needed. - Net assets with donor restrictions
Funds limited by donor purpose or timing.
This distinction is especially important for program planning, grant reporting, and conversations about sustainability.
What This Says About Your Nonprofit’s Story
Funders often begin here to assess financial stability and stewardship. This snapshot shows whether your organization has a strong foundation, how flexible your resources truly are, and whether you are positioned to sustain your mission responsibly over time.
2. Statement of Activities
What happened financially this year?
The statement of activities shows financial performance over a period of time—usually one fiscal year.
It reveals whether an organization brought in more than it spent, and how?
You’ll see:
- Revenue and support (grants, contributions, fees)
- Expenses (program, management, fundraising)
- The resulting change in net assets
Unlike a for-profit income statement, a nonprofit statement of activities tracks changes in restricted and unrestricted funds, often in separate columns.
What This Says About Your Nonprofit’s Story
This statement helps funders understand how effectively your organization turns revenue into mission-driven results. It shows whether you operate sustainably, manage expenses responsibly, and align spending with your stated priorities.
3. Statement of Cash Flows
Where did the cash actually go?
The statement of cash flows is often the most confusing—and the most revealing. It explains why cash increased or decreased during the year, even if the organization showed a surplus.
Cash activity is usually grouped into three categories:
- Operating Activities: The day-to-day work of grant receipts, payroll, rent, and program expenses
- Investing Activities: Purchasing or selling equipment, property, or investments
- Financing Activities: Loans, debt repayment, or gifts restricted for long-term use
What This Says About Your Nonprofit’s Story
Even financially healthy organizations can struggle with timing. This statement reveals whether you have the cash flow needed to meet obligations, navigate fluctuations, and follow through on your commitments.
How This Helps You
You don’t need to be an accountant to benefit from understanding nonprofit financial statements.
A working knowledge of your organization’s financials can help you:
- Write stronger, more credible grants
- Communicate clearly with funders and boards
- Ask better internal questions
- Connect financial decisions to mission impact
At Three Notch’d, we see financials as part of the whole story—one that deserves clarity, not confusion. Understanding your organization’s financial documents helps you be a more effective advocate for your mission, increases your credibility as a representative for your organization, and helps you see areas in greater need of funding. In short, knowledge is power, and when you’re empowered to do great work, your impact grows.
Want help telling your financial story?
We help nonprofits translate numbers into narratives that resonate with funders, boards, and partners.
Cover Photo by micheile henderson on Unsplash