Which financial statements are primarily required for nonprofit organizations?

Nonprofit organizations are primarily required to prepare three key financial statements: the statement of financial position, the statement of activities, and the statement of cash flows.

The statement of financial position serves a similar role to a balance sheet in the for-profit sector, detailing assets, liabilities, and net assets. It provides a snapshot of the organization’s financial health at a specific point in time, allowing stakeholders to assess its overall stability and liquidity.

The statement of activities reflects the organization’s revenues and expenses over a period, similar to an income statement. However, it focuses specifically on how resources are generated and utilized within the nonprofit context, showing the overall change in net assets during the period. This statement helps stakeholders understand the financial performance of the organization as it relates to its mission, including contributions, grants, and program revenues.

Finally, the statement of cash flows provides insights into the cash inflows and outflows from operating, investing, and financing activities. This statement is essential for understanding how funds are generated and spent, which is particularly important for nonprofits that rely on donations and grants.

These three statements combined give a comprehensive overview of a nonprofit organization’s financial condition and activities, making option B the correct response in this context.