Change in Net Assets

Chart line with rising and falling water stream symbolizing net assets change
0:00
Change in net assets shows whether a nonprofit's resources have increased or decreased, serving as a key indicator of financial sustainability and capacity for long-term impact in social innovation and development.

Importance of Change in Net Assets

Change in net assets reflects whether a nonprofits overall resources have increased or decreased during a reporting period. It serves as the bridge between the Statement of Activities and the Statement of Financial Position, capturing the cumulative effect of revenues, expenses, gains, and losses. For nonprofits in social innovation and international development, this figure is critical because it demonstrates whether the organization is growing, holding steady, or depleting resources. Donors, boards, and regulators rely on it as a high-level indicator of sustainability and the organizations ability to build capacity for long-term impact.

Definition and Features

Change in net assets is defined as the difference between total revenues and gains versus total expenses and losses over a fiscal year. This figure appears in the Statement of Activities and is also reflected in the Statement of Cash Flows (indirect method) as the starting point for reconciling accrual-based results with actual cash flow. A positive change indicates that revenues exceeded expenses, while a negative change signals a deficit. Change in net assets includes both restricted and unrestricted categories, making it a comprehensive measure of performance. It differs from operating cash flow, which focuses only on actual cash movement, and from total net assets, which show cumulative balances across years.

How This Works in Practice

In practice, nonprofits calculate change in net assets at the end of each reporting period as part of financial close. For example, if an organization records $5 million in total revenues and $4.8 million in total expenses, the change in net assets is +$200,000. This figure is then added to beginning net assets to determine the ending balance. When using the indirect method in the Statement of Cash Flows, the change in net assets serves as the starting point for adjusting accrual-based figures with non-cash items (like depreciation) and changes in working capital (like receivables or payables). Boards and finance teams analyze this measure to understand not only whether the year ended in surplus or deficit, but also whether financial trends are sustainable.

Implications for Social Innovation

For nonprofits engaged in social innovation and international development, change in net assets provides critical insight into financial resilience. A consistent increase allows organizations to invest in innovation, scale programs, and strengthen reserves, while recurring decreases may point to structural funding gaps or overreliance on restricted income. Transparent reporting of this figure reduces information asymmetry by showing stakeholders the net effect of revenues and expenses in advancing mission goals. It helps funders distinguish between one-time deficits (such as capital investments) and persistent weaknesses. By monitoring and communicating changes in net assets clearly, nonprofits reinforce accountability, highlight financial stewardship, and demonstrate their ability to sustain long-term impact.

Skills

Operating Activities, Financial Statements

Categories

Subcategories

Share

Subscribe to Newsletter.

Featured Terms

Financial Assumptions

Learn More >
Drafting desk with blueprint paper, calculator, and growth curves

Contributions (With Donor Restrictions)

Learn More >
Illustration of jars labeled for restricted funds on a desk

Working Capital Ratio

Learn More >
Formula for working capital ratio on blackboard with green and gold accents

Month-End Close Process

Learn More >
Closed shop door with month-end close sign in modern vector style

Related Articles

Stack of bills and card at finish line symbolizing ending cash

Ending Cash and Cash Equivalents

Ending cash and cash equivalents indicate a nonprofit's liquidity and financial health, crucial for funding programs and sustaining operations in social innovation and international development.
Learn More >
Illustration of water flowing through pipes into shelves of assets and investments

Net Cash Provided by (Used in) Investing Activities

Net cash from investing activities shows how nonprofits allocate cash for long-term growth, capacity-building, and strategy, revealing asset purchases or sales that impact sustainability and mission support.
Learn More >
Ledger page with solid and translucent entries representing non-cash adjustments

Adjustments for Non-Cash Items (Depreciation, In-Kind Contributions, Unrealized Gains/Losses)

Adjustments for non-cash items like depreciation and in-kind contributions help nonprofits accurately reflect cash flow and financial health beyond accrual-based net assets.
Learn More >
Filter by Categories