Preparing and Understanding Financial Statements

Preparing and understanding financial statements for a church or nonprofit organization is easier if you follow this simple rule: know your audience.

Basis for preparing and understanding financial statements:

• be easy to read so any person studying them will understand your organization’s financial picture;
• be brief and to the point so that the person studying them doesn’t get lost in the details;
• cover all the activities of the organization;
• have a comparison such as a budget or data from a corresponding period of the previous year;
• be prepared in a timely manner.

A financial report for your church members will usually just consist of the contributions and expenses. Financial reports for department heads in a nonprofit might only contain information relating to their department.

However, most financial statements are prepared for the church board or governing body and financial institutions. The required principal financial statements are the statement of activity; the statement of financial position; and the statement of cash flows. The order in which the statements are normally prepared and the nature of the data presented in each statement are as follows:

• Statement of Activity (Statement of Revenue and Expense)—a summary of your organization’s support and revenue, expenses, and changes in net assets for a specific period of time, such as a month or year.

• Statement of Financial Position (Balance Sheet)—a list of the assets, liabilities, and net assets as of a specific date, usually at the close of the last day of a month or a year.

• Statement of Cash Flows —a summary of the cash receipts and cash payments for a specific period of time, such as a month or a year.

*Learn more about financial statements for churches, recording financial transactions, and basic accounting concepts in the Basic Church Accounting ebook.

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