How to Read Nonprofit Financial Statements

Build Financial Literacy

Created by: David Johnson
Retired Professor at Northcentral University

What Will I Learn?

• Explain how the balance sheet, statement of activities, and statement of cash flows are used, what they measure, and why we need three statements.
• Differentiate between activities and cash flow
• Explain what is the balance sheet equation and why the balance sheet equation is the foundational model for accrual accounting/double entry accounting
• Define what are assets, liabilities, and net assets and how assets, liabilities, and net assets relate
• Explain how the statement of cash flows and statement of activities link into the balance sheet
• Explain the difference between for-profit and nonprofit financial statements
• Locate a real nonprofit’s annual report at their website and locate their financial statements within the annual report
• Explain who are the four most important stakeholders of a nonprofit (donors, employees, society, vendors)
• Explain the give and take of a transaction and how to record both sides of the transaction separately with the four stakeholders
• Explain what each line item of the balance sheet means for Bill & Melinda Gates Foundation, American Red Cross, and Wikimedia Foundation
• Explain which side of the give and take appears on the statement of activities and on the statement of cash flows
• Explain why you can’t measure activities with cash and why you need to use accrual accounting (double-entry accounting), not cash accounting
• Illustrate how accrual accounting can both record cash and activities using a spreadsheet
• Explain what each line item of the statement of activities means for Bill & Melinda Gates Foundation, American Red Cross, and Wikimedia Foundation
• Explain each important line item for the statement of cash flows means for Bill & Melinda Gates Foundation, American Red Cross, and Wikimedia Foundation
• Explain how the format of the operating activities section differs from the other two activities (investing and financing)
• Show how 11 common transactions with stakeholders affect the balance sheet, statement of activities, and statement of cash flows
• Explain how to find and read IRS Form 990 for nonprofits
• Explain how to analyze liquidity, operating, and spending ratios for nonprofits
• Test your knowledge by completing 30 multiple-choice question case about the Wikimedia Foundation

Requirements

• No course requirements or prerequisites. This course is for those with little financial knowledge

Target audience

• Anybody interested in understanding how a nonprofit is doing financially