Non-Profit-Making End-of-Year Financial Statements

Non-Profit-Making End-of-Year Financial Statements

Key Concepts

  • Non-Profit-Making Organisations are establishments that utilise their surplus revenues to further achieve their purpose or ‘mission’, rather than distributing their income to the organisation’s shareholders or leaders.

  • End-of-Year Financial Statements provide an overview of the organisation’s financial health, including income, expenditures, and the net result (surplus or deficit).

Different Types of Non-Profit-Making End-of-Year Financial Statements

Statement of Financial Activities (SoFA)

  • Similar to a profit and loss account for profit-making businesses.
  • Shows incoming resources and resources expended during the accounting period.
  • It also includes all recognised gains and losses, showing a true and fair view.
  • Results in the net incoming or outgoing resources, which is equivalent to profit or loss for a commercial company.

Balance Sheet

  • Shows the organisation’s financial position at the end of the financial year.
  • Lists all the assets and liabilities, including the cash at bank, debtors, creditors, and funds.
  • If the total assets exceed total liabilities then the non-profit organisation has a positive net worth, or otherwise, a negative net worth.

Cash Flow Statement

  • Provides information about the organisation’s cash receipts and cash payments during the accounting period.
  • Helps track the liquidity and solvency by demonstrating the ability to generate cash to meet obligations and commitments.
  • Cash flows are divided into three categories: operating activities, investing activities, and financing activities.

Notes to the Accounts

  • Provides additional details that support numbers on the SoFA, balance sheet, and cash flow statement.
  • Includes details on accounting policies, basis of preparation, assumptions, estimates, and potential financial risks.
  • Ensures transparency and comprehensibility of the full financial statements.

Reporting Fundraising Activities and Donations

  • Donations and grants should be reported when there is entitlement, probability of receipt, and measurability.
  • Fundraising income is often reported gross but related costs are shown separately in line with the agreed cost allocation.

Reserves Policy in Financial Statements

  • A key component in the financial strategy of not-for-profit organisations.
  • Should set out the rationale for holding reserves and indicate the extent and nature of those reserves.
  • Helps maintain the sustainability and solvency of the non-profit organisation.