Which statement best describes the purpose of the statement of activities in not-for-profit financial reporting?

• A. It provides a snapshot of cash receipts and disbursements.
• B. It explains the organization's financial position at the end of the period.
• C. It shows changes in net assets for the reporting period.
• D. It replaces the balance sheet for the organization.

Answer: (C)

The statement of activities shows how net assets change during the reporting period due to revenues, gains, expenses, losses, and transfers, including the impact of donor-imposed restrictions. Net assets represent the organization’s residual interest in its assets after liabilities, similar to equity, and the statement of activities highlights whether those net assets increased or decreased and how the changes are classified (unrestricted, temporarily restricted, permanently restricted). This provides insight into resource inflows and how they are used to fund programs and supporting services, as well as the effect of restrictions on resource availability.

It’s not a cash snapshot—that would be the cash flow statement. It doesn’t describe the organization’s financial position at period-end—that’s the balance sheet (statement of financial position). And it doesn’t replace the balance sheet; both are required to give a complete picture of resources and obligations.