09/19/2024 | News release | Distributed by Public on 09/19/2024 15:13
A Statement of Cash Flows is a detailed financial view used by nonprofit organizations to track inflows and outflows of money related to their activities during a specific time period, typically the fiscal year.
Without a clear Statement of Cash Flows, a nonprofit organization may not be maximizing its resources or identifying areas of opportunity or concern.
Below, we provide more detail about this document and why it plays such a key role in successful financial management.
Nonprofits use the Statement of Cash Flows in several key ways:
By analyzing cash flows from operating, investing, and financing activities, organizations can identify trends, manage expenses, and make strategic decisions about future initiatives.
The Statement of Cash Flows also enhances transparency and accountability, helping to ensure the organization remains on solid financial footing.
The Statement of Cash Flows is divided into three sections: Operating Activities, Investing Activities, and Financing Activities.
Let's examine each of these three sections in more detail.
The Operating Activities section reflects the cash generated or used by the nonprofit's core activities, such as receiving donations, grants, and other revenue directly related to its mission, as well as paying for salaries, supplies, and other operating expenses. It shows the net cash provided or used by the organization's day-to-day operations.
Operating Activities Inflow Examples:
Operating Activities Outflow Examples:
The Investing Activities section details cash flows related to the acquisition or disposal of long-term assets such as property, equipment, or investments. For a nonprofit, this might include buying or selling real estate, making or liquidating investments, or purchasing equipment needed for the organization's programs.
Investing Activities Inflow Examples:
Investing Activities Outflow Examples:
The Financing Activities section reports cash flows related to borrowing, repaying loans, and other financing transactions. In a nonprofit context, this might include cash received from endowments, proceeds from issuing debt, or repayments of loans. It reflects how the organization funds its operations beyond what is generated through its mission-related activities.
Financing Activities Inflow Examples:
Financing Activities Outflow Examples:
Take a look below to see an example of a Statement of Cash Flows generated through Blackbaud's industry-leading FENXT software.
When preparing or using a Statement of Cash Flows, several common mistakes can lead to inaccurate financial reporting or misinterpretation of the organization's cash position.
Avoiding these mistakes ensures that the Statement of Cash Flows accurately reflects the organization's cash position and provides useful insights for decision-making.
A clear Statement of Cash Flows is a great tool for nonprofit leaders, and is one of the four core financial documents that all nonprofits should be utilizing together to ensure complete management of the organization's finances and planning.
Take a look below to learn more about the other three financial statements:
Financial Statement | Purpose |
Statement of Financial Position | A snapshot of a nonprofit's assets, liabilities, and net assets at a given point in time, showing its overall financial health. |
Statement of Activities | A report detailing a nonprofit's revenues and expenses over a period, reflecting the changes in its net assets. |
Statement of Cash Flows | A financial report that tracks the cash inflows and outflows of an organization, illustrating how cash is generated and used during a period. |
Statement of Functional Expenses | A financial statement that categorizes a nonprofit's expenses by both their function and natural classification, providing insight into how resources are allocated toward various activities. |
To learn even more about nonprofit financial reporting basics, as well as other fund accounting tips, check out our Accounting Fundamentals Revisited webinar series.
The elements and formatting of the Statement of Cash Flows are generally the same for both nonprofits and for-profits. The main difference lies in what makes up the cash flows: nonprofits focus on donations, grants, and fundraising, while for-profits emphasize sales and profitability.
Nonprofits can use two methods:
Yes, nonprofits must follow generally accepted accounting principles (GAAP) and, in many cases, specific standards set by organizations like the Financial Accounting Standards Board (FASB). They should also comply with IRS requirements for reporting on Form 990.
The Statement of Cash Flows is typically prepared on an annual basis, alongside other financial statements. However, regular interim reviews (quarterly or monthly) can help with more timely financial management and planning.
Yes, different types of nonprofits (e.g., charities, foundations, educational institutions) may have unique cash flow patterns and reporting requirements based on their activities and funding sources. Tailoring the cash flow statement to reflect these specifics can provide more relevant insights.