Statement of Activities vs. Statement of Functional Expenses

Attribute	Statement of Activities	Statement of Functional Expenses
Purpose	Reports the revenues and expenses of an organization over a specific period of time	Reports the expenses by function and nature of an organization over a specific period of time
Format	Focuses on the overall financial performance of the organization	Breaks down expenses by function (e.g. program services, management and general, fundraising)
Revenue	Includes all sources of income, such as donations, grants, and program fees	Not typically included in this statement
Expenses	Includes all costs incurred by the organization in carrying out its mission	Breaks down expenses by function and nature, providing more detailed information

Introduction

Nonprofit organizations are required to prepare financial statements to provide transparency and accountability to their stakeholders. Two important financial statements that nonprofits must prepare are the Statement of Activities and the Statement of Functional Expenses. While both statements provide information about the organization's financial activities, they serve different purposes and have distinct attributes.

Statement of Activities

The Statement of Activities, also known as the Income Statement, provides a summary of an organization's revenues and expenses over a specific period. This statement shows how much revenue the organization has generated and how it has been used to support its programs and operations. The Statement of Activities typically includes revenues from donations, grants, program fees, and investment income, as well as expenses related to program services, administration, and fundraising.

One key attribute of the Statement of Activities is that it presents information on a total organization-wide basis. This means that all revenues and expenses are aggregated to provide a comprehensive view of the organization's financial performance. Stakeholders can use this statement to assess the organization's overall financial health and sustainability.

Another important aspect of the Statement of Activities is that it follows the accrual basis of accounting. This means that revenues and expenses are recognized when they are earned or incurred, regardless of when cash is received or paid. By using the accrual basis, the Statement of Activities provides a more accurate representation of the organization's financial activities during the reporting period.

Overall, the Statement of Activities is a crucial financial statement that helps stakeholders understand how an organization generates and uses its resources to achieve its mission and goals.

Statement of Functional Expenses

The Statement of Functional Expenses provides detailed information about how an organization's expenses are allocated among its various functions or programs. This statement breaks down expenses by categories such as program services, management and general, and fundraising. By categorizing expenses in this way, the Statement of Functional Expenses helps stakeholders understand how the organization's resources are being utilized to support its mission.

One key attribute of the Statement of Functional Expenses is that it provides a more detailed analysis of an organization's expenses compared to the Statement of Activities. While the Statement of Activities presents expenses in broad categories, the Statement of Functional Expenses breaks down expenses by specific functions or programs. This level of detail allows stakeholders to see how much of the organization's resources are allocated to each area of operation.

Another important aspect of the Statement of Functional Expenses is that it helps nonprofits demonstrate compliance with regulatory requirements. Many funders and regulatory bodies require nonprofits to allocate their expenses among program services, management and general, and fundraising in a specific way. By preparing the Statement of Functional Expenses, organizations can ensure that they are meeting these requirements and providing transparent information to their stakeholders.

Overall, the Statement of Functional Expenses is a valuable financial statement that provides stakeholders with a detailed breakdown of an organization's expenses and helps demonstrate how resources are being allocated to support its mission.

Comparison

While the Statement of Activities and the Statement of Functional Expenses serve different purposes, they are both essential financial statements that provide valuable information to stakeholders. The Statement of Activities focuses on an organization's overall financial performance, showing how revenues are generated and used to support programs and operations. In contrast, the Statement of Functional Expenses provides a detailed breakdown of expenses by function, helping stakeholders understand how resources are allocated among different areas of operation.

• The Statement of Activities presents information on a total organization-wide basis, while the Statement of Functional Expenses breaks down expenses by specific functions or programs.
• The Statement of Activities follows the accrual basis of accounting, recognizing revenues and expenses when they are earned or incurred. The Statement of Functional Expenses helps nonprofits demonstrate compliance with regulatory requirements by allocating expenses among program services, management and general, and fundraising.
• Both statements play a crucial role in helping stakeholders assess an organization's financial health and sustainability. The Statement of Activities provides an overview of the organization's financial performance, while the Statement of Functional Expenses offers a detailed analysis of how resources are allocated among different functions.

In conclusion, the Statement of Activities and the Statement of Functional Expenses are important financial statements that provide valuable information to stakeholders about an organization's financial activities. While they serve different purposes and have distinct attributes, both statements play a crucial role in helping stakeholders understand how an organization generates and uses its resources to achieve its mission and goals.