Which financial statements are primarily prepared for nongovernmental NFP entities?

Nongovernmental not-for-profit (NFP) organizations primarily prepare a statement of financial position and a statement of activities. The statement of financial position is akin to a balance sheet for these entities, showcasing their assets, liabilities, and net assets, which reflect the organization's financial health at a specific point in time. Meanwhile, the statement of activities serves a role similar to an income statement, detailing the revenues, expenses, and changes in net assets over a period. This statement highlights the organization's reliance on contributions and grants, along with program revenues and expenses, which are fundamental in assessing the NFP's operations and financial performance within the context of its mission.

For a better grasp of the other options, the statement of cash flows, while important, is typically viewed as a supplementary financial statement rather than primary for NFPs. Income statements and statements of retained earnings are associated with for-profit entities, as they emphasize profitability and income retention, which are not applicable in the same way for NFPs. The balance sheet referenced in other options does not relate explicitly to the format utilized by NFPs; the terminology aligns more fittingly with private sector financial reporting. Therefore, the statement of financial position and statement of activities effectively represent the financial reporting framework tailored