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How to Read Nonprofit Financial Statements

Build Financial Literacy

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Last updated 9/2023
English

Overview

If you would like to learn just enough accounting to read nonprofit financial statements, this course is for you. In this course you will learn accounting, not by preparing financial statements, but by reading financial statements, just enough to understand basic terms and concepts, and just enough to size up a nonprofit.

At the end of this course, you’ll be able to read a nonprofit’s financial statements, determine how it is spending its money, and how solvent it is.

This course has seven sections, and here is what we will cover:

  1. Basic financial statement characteristics
  2. Read the financial statements of the Bill and Melinda Gates Foundation
  3. Where the numbers come and why we need three financial statements
  4. Deep dive and read the American Red Cross’ three financial statements
  5. Test what you’ve learned so far with a 30-question case study about the Wikimedia Foundation
  6. IRS form 990 that nonprofits must file. We’ll find out where you can find compensation information
  7. Analyze nonprofits using three categories of ratios

Become financially literate! Learn how to read nonprofit financial statements.

Who this course is for

Anybody interested in understanding how a nonprofit is doing financially.

What you'll learn

  1. Explain how the balance sheet, statement of activities, and statement of cash flows are used, what they measure, and why we need three statements. 
  2. Differentiate between activities and cash flow
  3. Explain what is the balance sheet equation and why the balance sheet equation is the foundational model for accrual accounting/double entry accounting
  4. Define what are assets, liabilities, and net assets and how assets, liabilities, and net assets relate
  5. Explain how the statement of cash flows and statement of activities link into the balance sheet
  6. Explain the difference between for-profit and nonprofit financial statements
  7. Locate a real nonprofit’s annual report at their website and locate their financial statements within the annual report
  8. Explain who are the four most important stakeholders of a nonprofit (donors, employees, society, vendors)
  9. Explain the give and take of a transaction and how to record both sides of the transaction separately with the four stakeholders
  10. Explain what each line item of the balance sheet means for Bill & Melinda Gates Foundation, American Red Cross, and Wikimedia Foundation and distinguish between current assets, non-current assets, current liabilities, non-current liabilities, and net assets with and without donor restrictions
  11. Explain which side of the give and take appears on the statement of activities and on the statement of cash flows
  12. Explain why you can’t measure activities with cash and why you need to use accrual accounting (double-entry accounting), not cash accounting
  13. Illustrate how accrual accounting can both record cash and activities using a spreadsheet
  14. Explain what each line item of the statement of activities means for Bill & Melinda Gates Foundation, American Red Cross, and Wikimedia Foundation, including contributions/revenues and expenses with and without donor restrictions
  15. Explain each important line item for the three sections of the statement of cash flows: operating activities, investing activities, and financing activities for Bill & Melinda Gates Foundation, American Red Cross, and Wikimedia Foundation
  16. Explain how the format of the operating activities section differs from the other two activities (investing and financing)
  17. Show how 11 common transactions with stakeholders affect the balance sheet, statement of activities, and statement of cash flows
  18. Explain how to find and read IRS Form 990 for nonprofits
  19. Explain how to analyze liquidity, operating, and spending ratios for nonprofits
  20. Test your knowledge by completing 30 multiple-choice question case about the Wikimedia Foundation

Requirements

  1. No course requirements or prerequisites
  2. This course is for those with little financial knowledge
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Course Content

8 Sections 25 Lectures 4h 16m total length

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