Nonprofit Accounting Basics

Internal Reporting

A Picture is Worth a Thousand Numbers

Not surprisingly, many nonprofit board members do not fully understand financial statements—despite the fact that understanding those statements is key to good governance.

Debt to Assets Ratio

This is one of many leverage ratios used to determine the financial viability of an organization.

Designing a Four Star Dashboard

In a previous article, we described the importance of including multiple internal stakeholders when selecting and implementing an Association Management System (AMS).

Net Investment in Fixed Assets

This calculation subtracts any existing long-term debt related to fixed assets (e.g., vehicle loan, mortgage, leasehold improvement loan, etc.) from the value of fixed assets.

Operating Reserve Ratio

This ratio is a focused variant of the Months Cash on Hand ratio.

Program Costs to Earned Revenue Ratio

This ratio calculates the portion of program expenses that is covered by related program revenue.

Ratio: Months Cash on Hand

This ratio tells you whether the organization has sufficient cash resources to deliver its mission and pay its obligations on a timely basis. How long could the bills be paid with no new cash?

Ratios: Current Ratio

This ratio tells you how many times current (within 12 months) assets could cover current liabilities. A value of 1 or better indicates that current liabilities could be covered by current assets.

Ratios: Net Working Capital

This indicator is another liquidity measure that expands to include all current (within 12 months) assets such as receivables and inventory.

Ratios: Profit Margin (Surplus Margin)

This calculation indicates by what percent revenues are over or under expenses.

Statement of Financial Activities

Statement of Financial Activities

It used to be called the income statement, and many nonprofit organizations produce a variety of versions of this report calling it various names such as b

Statement of Financial Position

It used to be called the balance sheet.

The Importance of Cash Projections

It is a prudent financial practice to prepare and operate from a budget. The budget is the annual financial plan for carrying out the strategic plan and mission of the organization.

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