In Defense of One-Column Financial Statements
I'm about to commit nonprofit accounting heresy.
The two-column audit format (that sacred cow of nonprofit financial reporting) is making your organization worse at financial decision-making. It's time to kill it.
Last week, a board member with 20 years of nonprofit experience asked me to explain why our "surplus" in column two didn't mean we could afford to expand programs. I watched her eyes glaze over as I explained temporarily restricted net assets, multi-year pledge timing, and donor designation nuances.
This isn't a comprehension problem. It's a presentation problem.
The Two-Column Trap
Here's what every nonprofit CFO knows but rarely admits: The standard two-column audit format—splitting everything into "without donor restrictions" and "with donor restrictions"—actively obscures financial reality.
Board members naturally focus on the first column (unrestricted) and assume it mirrors the operating budget. It rarely does. Multi-year grants get recognized over time. Pledges appear as revenue before becoming cash. Restricted funds release on accounting schedules that have nothing to do with operational timing.
If you only watch the unrestricted column, you get a false sense of security. Or false panic. Usually both in the same fiscal year.
I've watched organizations with $5 million in "temporarily restricted assets" struggle to make payroll. I've seen boards approve expansions based on restriction releases that were already spent. The two-column format doesn't just confuse—it drives bad decisions.
The One-Column Solution
My fix: a one-column operating view with a clear "below-the-line" section that actually tells you what's happening.
Here's the framework:
Above the Line (Operating Reality)
This matches what you'd typically see in the unrestricted column, plus releases from restriction that fund current operations. This is what management should run the organization against. Period.
Operating revenue (including releases that fund operations)
Operating expenses (your actual cost to deliver mission)
Operating margin (the only surplus/deficit that matters day-to-day)
Below the Line (The Full Picture)
Part 1: Unrestricted Non-Operating Activity
Investment gains/losses (they're not operating revenue)
Campaign costs (one-time, not recurring)
Extraordinary items (keep the noise out of operations)
Part 2: Restriction Flow Tracking This is where the magic happens:
Releases from restriction - shown as negative because this isn't new money, you already received it
New restricted gifts - shown as positive, this is your replenishment
Net restriction position - are you burning or building?
The One Question That Changes Everything
At every board meeting, ask one simple question: "Is replenishment keeping pace with releases?"
100%+ replacement rate: You're building restricted reserves. Sustainable.
75-99% replacement rate: You're slowly depleting. Time to pay attention.
50-74% replacement rate: You're burning restricted funds. Action required.
Below 50% replacement rate: You're heading for a cliff. Crisis mode.
Missing replenishment once is manageable—grants have cycles, donors have timing. Miss for a couple of years and the cash wall arrives fast, usually with about 90 days' warning.
Why This Works
This structure tells the full story on a single page, without a binder of footnotes:
Operations are isolated: Board can see if you're truly sustainable day-to-day
Restrictions are tracked: No more surprise depletion of restricted funds
Cash implications are clear: The replenishment rate predicts future cash position
Decisions get simpler: Three numbers matter instead of dozens
Implementation Without Chaos
You can't just flip formats at your next board meeting. Here's how to transition:
Month 1-2: Run both formats in parallel. Put the one-column as a "executive summary" before the traditional audit format.
Month 3-4: Lead discussions with the one-column, reference the two-column for questions.
Month 5-6: Move the two-column to the appendix. Make one-column your primary.
Month 7+: Use one-column for all board discussions. Keep two-column for audit/compliance only.
The Objections You'll Face
"But our auditors require two-column format!" They require it for your audit. They don't require it for board meetings. Your audit can sit in the appendix where it belongs.
"This seems too simplified." Simple doesn't mean simplistic. This format surfaces the complexity that matters while eliminating the complexity that confuses.
"We've always done it this way." And how's that working for your board's financial confidence?
The Bottom Line
I'm continually struck by how much more complex nonprofit accounting is than corporate. We've made it worse by clinging to presentation formats that prioritize compliance over comprehension.
Your board members are smart, accomplished people. They shouldn't need a CPA to understand whether you can make payroll next quarter. The one-column format respects their intelligence while acknowledging their time constraints.
Stop defending complexity. Start defending clarity.
Your mission depends on financial decisions. Those decisions depend on understanding. And understanding depends on presentation that illuminates rather than obscures.
