Nonprofit organizations exist to pursue a mission, not to generate profits for shareholders. However, like any other organization, nonprofits must generate income and revenue to sustain their operations and achieve their goals. The distinction between Income and Revenue for nonprofits is an important one.
What is the Difference Between Nonprofit Income and Revenue?
Nonprofit income and revenue are two related but distinct concepts in nonprofit accounting. Income refers to all the money that a nonprofit organization receives, including both revenue and non-revenue sources such as donations, grants, and investment income. Revenue, on the other hand, specifically refers to the funds that a nonprofit earns through its regular activities, such as selling goods or services, providing programs or services, or collecting membership dues.
In other words, revenue is a subset of income, and it represents the funds that a nonprofit generates through its core operations. Non-revenue income sources are typically classified separately from revenue in nonprofit financial statements, so that stakeholders can see both the total amount of income received and the breakdown of revenue sources.
It’s important for nonprofits to track both income and revenue, as they provide different insights into the organization’s financial health and performance. Revenue can help nonprofits understand how effectively they are fulfilling their mission and generating value for their stakeholders, while income provides a more comprehensive view of the organization’s overall financial resources.
What is Nonprofit Income?
Nonprofit income refers to the funds that a nonprofit receives from all sources, including donations, grants, investments, and earned income. Nonprofits use their income to pay for their operating expenses, programs, and services. Examples of nonprofit income include:
- Donations: Nonprofits often rely on individual and corporate donations to fund their operations. These donations can come in the form of cash, stocks, or other assets.
- Grants: Nonprofits may receive grants from government agencies, foundations, and other organizations to support specific programs or initiatives.
- Investment Income: Nonprofits may generate income from their investments, such as stocks, bonds, and real estate.
- Earned Income: Nonprofits may generate income from the sale of goods or services. For example, a nonprofit arts organization may sell tickets to performances or a nonprofit animal shelter may charge adoption fees.
What is Nonprofit Revenue?
Nonprofit revenue refers to the funds that a nonprofit earns from its ongoing operations. Revenue is generated through the sale of goods or services and is an essential component of a nonprofit’s financial sustainability. Examples of nonprofit revenue include:
- Program Service Revenue: Nonprofits generate program service revenue from the services they provide, such as counseling, education, or health care.
- Membership Fees: Nonprofits may charge membership fees to individuals or organizations that want to support their mission.
- Product Sales: Nonprofits may sell products to raise funds, such as t-shirts, books, or other merchandise related to their cause.
- Event Revenue: Nonprofits may generate revenue from events they host, such as galas, auctions, or charity walks.
Nonprofits need to generate both income and revenue to support their operations and fulfill their missions. Nonprofit income refers to the funds that nonprofits receive from all sources, while nonprofit revenue refers to the funds generated through their ongoing operations. By understanding the difference between income and revenue, nonprofits can better manage their finances and achieve their goals.