An income statement is a financial report that summarizes the income and expenses of an organization during a period of time. This report is also known as a statement of activities or profit and loss statement. The income statement shows financial information over a period of time, which is a set, recurring increment that could be over a month, quarter, or year. The time period is often reflected as “YTD” or year to date.

How is an income statement structured?

Unlike the balance sheet that is always arranged in the same order, the income statement may look different if being prepared for sharing outside the organization with external audiences. For example, you may choose to highlight what is restricted. Although the format may be adjusted, generally the following items are present in some way on the income statement.

BUDGET: This is an organization’s financial plan, usually for the coming year.

  • The budget includes an estimate of income and expenses, considering both fiscal accountability and mission priorities.
  • The budget should be reviewed and approved by the board.

ACTUALS: True financial results – numbers that show what actually happened.

  • Actual income and expenses may differ from those budgeted or projected.

INCOME: Nonprofits have two main types of income – support and revenue

  • Support comes from resources for which no services or goods were exchanged, such as grants, contributions, and in-kind donations. (See Chapter 4. Giving for more information.)
  • Revenue includes resources that resulted from an exchange transaction, such as program and service fees, ticket sales/event income, and investment income.
  • In-kind donations represent the gift of nonfinancial goods or professional services. Nonprofits should track in-kind donations on their accounting books. In-kind donations have value and nonprofits need to plan for scenarios in which those items are not donated and need to be purchased.

EXPENSES: Nonprofits have many of the same expense categories as other organizations (e.g., wages, operating expenses, and communications). Unlike other types of organizations, nonprofits are also required to track expenses by functional classification in addition to their natural classifications.

  • Functional classification groups expenses according to their purposes like program services, administration, or fundraising. This classification is required on the IRS Form 990. (See Chapter 3. Nine-Ninety for more information.)

BUDGET VARIANCE: This is a measure to quantify the difference between budgeted and actual figures for a particular accounting category.

YTD Actual — YTD Budget = Budget Variance

  • In general, a financially favorable budget variance is when the actual income is higher than the budget and actual expenses are lower than the budget.

    Sample income statement

    Finance Unlocked For Nonprofits Logo. Balance Sheet. Income Statement. Nine-Ninety. Giving. Oversight.

    Check out this sample income statement and complete the short activity to apply the ideas learned thus far.

    Preview of the Sample Income Statement - A spreadsheet with sections for Support, Revenue, and Expenses

    Sample Income Statement

    Sample Income Statement from the Finance Unlocked Guide

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    Activity

    Using the sample income statement, answer the following questions:

    1. Assuming the fiscal year starts on January 1, what is the period of time being compared in the income statement?
    2. For the period of time identified, how is the organization doing relative to the budget?
    3. Are there any large budget variances? If yes, are the variances in the income, expenses, or both?
    4. Could this income statement be shared with funders? Would this statement provide the right level of information for a funder’s needs?
    5. How diversified are the nonprofit’s funding streams? Is the budget overly dependent on a single revenue stream?

    Find the correct answers for this activity here.

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