501c3 Financial Statements - Preparation (Part 1)

 

 

 Generally, small charities and nonprofits with budgets under $50K/year can prepare their own financial statements: Profit & Loss Statement and a Balance Sheet.

 

Below are some tips that will lead you through the tedious process of organizing your nonprofit’s financials and how to use the financial information:

 

 

Preparation of Financial Statements:

 

If you’re NOT using an accounting software:

 

1. Review carefully your bank statements and trace all the transactions during the year:

• Collect all the receipts and records for the financial transactions;
• Be aware of all the organization’s expenses and revenues by month.

 

2. Find a good template for a Profit & Loss Statement and a Balance Sheet

• You can request a free copy of our template by e-mail: This email address is being protected from spambots. You need JavaScript enabled to view it.;
• Review the categories in the P&L and in the Balance sheet – what goes, where. For example: accounting service is an expense and it will be included in the P&L; however, a bank loan is a liability and it will be included in the Balance Sheet.
• Modify the categories in a way that will better work for your nonprofit. For example, an animal shelter would have revenues from: donations, adoptions, grants and contributions; and expenses for: animal supplies; food; vet expenses; rent; supplies; etc.

 

3. Prepare a Profit & Loss statement (Income Statement) – include your organization’s expenses and revenues for the reported period. The first section are the organization’s revenues; the second section are the expenses.

• Do not forget to include any in-kind donations throughout the year in the Revenues’ section;
• Do not include any expenses or revenues that are not for the reported period;

 

 

4. Prepare a Balance Sheet – the purpose of the balance sheet is to show your organization’s assets and liabilities at the end of the reported period:

• Do not forget to include all the organization’s accounts ending balance – checking and savings; as well as cash-on-hand;
• Do not forget to include any assets that you purchased during the year. For example, if the nonprofit purchased a computer for $2,000; the computer should be included in the Machinery & Equipment category with its purchased price of $2,000;
• Do not forget to include any loans or accounts payables at the end of the period in the liabilities part that are still outstanding.

 

5. Review your work

•         Verify whether your numbers are correct; ideally the revenues minus expenses should equal the cash at the end of the year;

 

If you ARE using an accounting software:

 

1. Make sure all the organization’s transactions are added:

•          Review your organization’s transactions by month;
•          Make sure you didn’t miss to enter any transaction;

 

2. Generate the financial reports:

•          Do not forget to assign the correct reported period;
•         Do not forget to assign the accounting method – cash or accrual;

 

3. Save the reports and review the numbers:

•         Ideally the revenues minus expenses should equal the cash at the end of the year;