The 3 Types of Financial Statements
There are three primary types of financial statements: an income statement, a balance sheet, and a statement of cash flows. Each of these statements is incredibly important to have for your nonprofit and can benefit your organization. Here is a brief overview of the three types of financial statements.
Income Statement, or the Profit & Loss Statement
On the most basic level, the income statement tells you how much money your nonprofit brought in and the bills the nonprofit had during a certain period of time. In order to make money in a nonprofit, you will need to have money left over after you pay all of your bills. This is a basic definition of “profit.” The Profit and Loss statement lets you see the “bottom line,” or your profit and loss after everything was paid during a specific time period. Here are just a few things an income statement will tell you about your nonprofit:
- How well your nonprofit is performing
- If your nonprofit is profitable
- If you are overbudget or paying too much in some areas
The balance sheet is a type of financial statement that lets you see your assets and your liabilities at any given moment in your nonprofit. Your assets are the things that you own. Examples of assets would be cash in your bank account, all equipment your nonprofit owns, and money other people owe you. On the other hand, your liabilities are what you owe others. These can include credit card debt, and loans and wages owed to employees. Here are just a few of the things a balance sheet will let you know about your nonprofit:
- You need more cash reserves
- If you can handle more debt
- If you can handle growing or expanding
- Be more aggressive with collecting money owed to you
Statement of Cash Flows
To put it simply, a statement of cash flows tells you where your money is coming from, and how it is being spent during a period of time. Financial statements like this are important for understanding where your money is going. Some nonprofits are profitable, but go out of business because they did not have enough “cash on hand” to pay their bills. This can happen if the timing of when your bills are due conflicts with when you get paid. Your statement of cash flows can help you see if this is, or will be a problem, so that you can correct it in advance. Here are a few things you can learn about your nonprofit from reviewing your statement of cash flows:
- How much are you bringing in from sales and day-to-day nonprofit operations?
- The money spent to buy equipment, or other assets
- How much money did you borrow?
- Are you bringing in enough cash to pay your bills?
Keeping financial records is not a simple task, nor is starting and growing a nonprofit. You need the right team with the right expertise to help you on this journey. Our team has helped thousands of people start and grow nonprofits that impact the world. If you want the best for your nonprofit, look no further than Chisholm Law Firm. We have a 100% success rate for our clients.
You can rest assured that your nonprofit is in the best hands and that we’ll get everything done right the first time. Call us today to schedule your free consultation.
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