New rules will change the way nonprofits report and describe their net assets. These changes will reduce the number of net asset classes from three to two and require separate subtotals for activities with and without donor restrictions.
Before you can perform functional expense reporting, you should have a written policy in place addressing cost allocation. The policy should be reviewed at least annually and revisions made as necessary.
The new accounting guidance on nonprofit financial reporting applies to fiscal years beginning after Dec. 15, 2017 (calendar 2018 for calendar-year organizations); however, early adoption is permitted. So now is a good time to think through the impact the new accounting standards will have on your financial statements.