Not For Profit Statement of Cash Flows. CPA Exam FAR.

In this video, we discuss not for profit statement of cash flows as covered in an accounting course and CPA exam.
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A not-for-profit (NFP) Statement of Cash Flows is a financial report that summarizes the sources of cash and cash equivalents entering and leaving the organization. It provides insights into an NFP's liquidity, financial health, and its ability to alter cash flows in future circumstances. This statement is divided into three main sections:

Operating Activities: This section reports the cash inflows and outflows related to the NFP's primary mission and activities. It includes receipts from donors, grants, and payments for expenses like salaries, utilities, and supplies. The purpose is to show the net cash provided by or used in operations.

Investing Activities: Here, the focus is on cash flows related to the purchase and sale of long-term assets and investments. This can include buying or selling property and equipment, or investments in securities. This section reveals how much of the NFP's cash is being used for future growth and resource generation.

Financing Activities: This section reports cash flows related to borrowing and repaying debts, and receiving contributions or grants that are restricted for long-term purposes. It shows the net cash provided by or used in financing activities that affect the organization's capital structure.

The Statement of Cash Flows for a not-for-profit organization differs from that of a for-profit entity mainly in the nature of its activities and the sources of its cash flows. For NFPs, significant attention is given to the restrictions placed on contributions by donors, as these restrictions can determine how funds can be used, affecting both operating and financing activities.

To prepare the Statement of Cash Flows, NFPs typically start with the net income (or loss) from the Statement of Activities (equivalent to the income statement in for-profit organizations). They then adjust for non-cash transactions, changes in operating assets and liabilities, and consider the cash effects of investing and financing transactions.

It's crucial for not-for-profits to maintain a healthy cash flow to ensure they can continue to operate effectively and fulfill their mission, especially since they often rely on donations and grants that can fluctuate significantly. This statement, along with the Statement of Financial Position (balance sheet) and the Statement of Activities, provides a comprehensive view of an NFP's financial health.



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