Non-Profit-Making End-of-Year Financial Statements
Non-Profit-Making End-of-Year Financial Statements
Key Concepts
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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.
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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.