INCOME STATEMENT AND FORM 990
Form 990 is an annual reporting return that especially 501(c)(3) and 501(c)(4) federally tax-exempt organizations must file with the Internal Revenue Service. The most current version of the Form 990 provides information on the filing organization's mission, programs, and finances. Information from the income statement of nonprofit organizations are linked with
- Part I, summary (activities and governance, revenue, and expenses [Box 9.2])
Part VIII, statement of revenue (contributions, gifts, grants, and other similar amounts; program service revenue; other revenue, and total revenue, categorized in total revenue, related or exempt function revenue, and revenue excluded from tax under sections 512-514 [Box 9.3])
Part IX, statement of functional expenses (total expenses, program service expenses, management and general expenses, and fund-raising expenses [Box 9.4])
The balance sheet is a snapshot of the financial position of an organization at a specific point in time, generally at the close of an accounting period. The balance sheet shows an organization's financial health or net worth at a given time. The balance sheet of a nonprofit organization includes three main sections:
3. Fund balance
Box 9.2 Part I Summary, Form 990
BOX 9.3 PART VIII, STATEMENT OF REVENUE, FORM 990
BOX 9.4 PART IX, STATEMENT OF FUNCTIONAL EXPENSES, FORM 990
Assets include anything of value that belongs to an organization. Organizations have current assets and noncurrent or long-term assets.
Current assets: These are assets that can be turned into cash on short notice or consumed within a year.
- Cash (Non interest bearing): This refers to cash on hand and money in checkbook after it has been fully reconciled. It is better for nonprofit organization to have just the necessary amount of cash and not more, because it earns no interest.
- Savings and temporary cash investments: Money held in an interest-bearing account for the short term (e.g., certificates of deposit or CDs, money market funds, and U.S. Treasury bills). Accounts receivable: This is mainly for nonprofit organizations that have fee-based service programs and bill their clients for services rendered. It can be money to be paid either by the client or a third party on behalf of the client. Accounts receivable is money that an organization expects to receive based on an invoice, but has not been collected yet.
- Allowance for doubtful accounts: All receivables may not be collected. However, it can be difficult at time to collect some debts from clients, and the account remains unpaid. Unpaid accounts are called bad debts.
- Pledges receivable: Similar to accounts receivable, these are the promises by donors to make a donation to a nonprofit organization, but which have not yet been paid.
- Grants receivable: Pledges made by individuals, and grants by foundations, corporations, and government agencies.
Uncommon items: These include:
- Receivables due from current and former officers: This refers to the very occasional practice of lending money to officers and directors.
- Receivables due from other disqualified persons: Loans to organization insiders who are not current or former officers.
- Other notes and loans receivable: Loans to outsiders, some of which may turn out to be doubtful accounts.
Inventories: Inventories are the accumulation of materials and supplies, which are waiting to be used in delivering services or making a product.
Prepaid expenses and deferred charges: Benefits or expenses that have been paid in advance; generally the value of paid annual insurance that crosses fiscal years.
Noncurrent assets or long-term assets: These are assets that are more difficult to turn into cash on short notice, and tend to be more long-standing.
Investments: Securities or stocks that provide interest income and can be sold to raise cash. These are noncurrent because an organization would not want to sell a security if the market is down. In fact, because of market fluctuations, the same stock that is down today may generate a gain in the upcoming months.
- Other investments: Investment in for-profit entities.
Land, buildings, and equipment: These are the holdings used for the purpose of operating the nonprofit organization.
- Intangible assets: Nonphysical assets, such as intellectual property and patents (generally, an asset that does not fit into any other category).