Nonprofit Accounting Basics

Statement of Financial Position

Note: Articles published before January 1, 2017 may be out of date. We are in the process of updating this content.

The Statement of Financial Position (SOP) is the correct nonprofit term for the balance sheet. The concept and the equation are essentially the same as any business balance sheet or statement of personal net worth, with the key difference being that for nonprofits, what’s left when you subtract liabilities from assets is not considered “equity” belonging to an individual or a business, but rather “net assets” that remain with the nonprofit entity.

  Assets  (what you have or what others owe you or hold on your behalf
           Minus Liabilities (what you owe to others or hold on their behalf)
           Equals Net Assets (what’s left over)

The SOP reflects the overall financial position of your organization at a given moment in time. It shows the accumulated results of all the individual years of your organization’s operations put together.

 

It is important to learn how to read and understand your organization’s SOP report. This report can help you monitor cash balances and liquidity. It can tell you how much is receivable, which is especially important when managing reimbursable grants and multi-year pledges. It shows the level of payables and borrowing. It differentiates net assets with donor restrictions from those without restrictions. It shows the cumulative operating surplus or deficit.

Here is an illustration of the Statement of Financial Position components:


The following links related to Nonprofit Accounting Basics pages provide greater detail on each component of the SOP as well as recommended formatting:

Assets
Liabilities
Net Assets
The Disaggregated SOP

The following links related to Nonprofit Accounting Basics pages provide greater detail on how to read various reports as well as recommended formatting:

Statement of Financial Position 
Statement of Financial Activities
Statement of Functional Expenses
Cash Flow Projections
Management Reports Inventory
Dashboards or Snapshots
Formatting Tips for Internal Reports