A not-for-profit organization that follows FASB standards must display the changes in all classes of net assets on which of the following statements?

• A. Balance Sheet
• B. Statement of Cash Flows
• C. Statement of Activities
• D. Statement of Financial Position

Answer: (C)

Not-for-profit organizations use the Statement of Activities to show how all classes of net assets change over the reporting period. This statement is the nonprofit equivalent of an income statement and presents revenues and gains, expenses, and transfers, with the changes shown for each class of net assets (donor-restricted and unrestricted). That makes it the proper place to display how resources increased or decreased during the period.

In contrast, the Balance Sheet (Statement of Financial Position) shows the organization’s financial position at a point in time—assets, liabilities, and net assets—not the changes that occurred during the period. The Statement of Cash Flows, meanwhile, tracks cash inflows and outflows, not the overall net asset changes. Under FASB for not-for-profits, the emphasis is on reporting how net assets change, which is why the Statement of Activities is the correct presentation.