Nonprofit Accounting: A Guide to Basics and Best Practices

Nonprofit Accounting

Both for-profit and nonprofits follow the Generally Accepted Accounting Principles (GAAP). There is some variance between individual states, so be sure to check with specific rulings in your region. Nonprofit organizations play an incredibly important role in society and culture.

One of the first steps to take when managing your accounting practices is to hire ethically responsible staff members. Individuals have thwarted many well-meaning organizations within the organization who took advantage of having access to monetary contributions. With that being the case, all team members who spend or distribute funds should stay up-to-date on the best practices. Below are several tips and rules to follow to maintain a thriving nonprofit budget.

Tax accounting for nonprofits

Nonprofit accounting professionals must adhere to specific guidelines when they create reports. The primary guidelines your organization should know about are the GAAP standards. Mary Girsch-Bock is the expert on accounting software and payroll software for The Ascent.

Through earning a relevant graduate degree, such as a Master of Accountancy, students can learn the specific knowledge and techniques to help nonprofit organizations optimize their financial security. While businesses are organized to generate profits, nonprofits are organized to address needs in society. As a result, nonprofits will issue a statement of activities instead of the income statement issued by for-profit businesses.

Tax Returns (IRS Form

QuickBooks is known and loved by many specifically for its polished, no-fuss desktop and user-friendly interface. It has an impressive suite of core features including billing and invoicing, collections, cash management, fixed asset management, and even payroll capabilities. Both of these positions are vital to your organization’s success, but they shouldn’t be lumped together. While a volunteer or staff member might be able to take on their organization’s bookkeeping duties, they’d be hard-pressed to take on an accountant’s responsibilities. Nonprofit and for-profit accounting are very different entities and require different approaches.

This will ensure that your organization is staying on track to achieve your goals. But, when you grasp how to read various accounting documents, it becomes much easier to understand how finances function and move at your organization. Nonprofit accounting basics are more complex than accounting for a for-profit business, but using industry-specific software will make the process much easier.

Develop a Realistic Annual Operating Budget

Long-term strategies can also be helpful in recruiting new members, donors, community supporters, and more. A billing scheme is a fraudulent disbursement technique whereby a person submits bills for bogus goods or services, inflated invoices, or invoices for personal purchases to trick their employer into paying them. However, they are very different concepts, and understanding the difference will help you allocate tasks across your team. In accordance with these standards, there are several types of documentation that your organization should be aware of.

In both cases, you can’t spend that money yet because you haven’t received it yet. But the revenue will show on your monthly reports, making your net revenue number look high. But learning all the details and keeping up with your bookkeeping can be a big challenge for nonprofits of all shapes and sizes. Statement of Activities – Like the report above, this core financial statement has a different name than its for-profit version– the INCOME STATEMENT, or PROFIT AND LOSS (P&L) STATEMENT.


It increases the level of trust donors and supporters have with nonprofits when they know their money is used for its intended purpose. Fund accounting is a system of accounting that allows organizations to separate their money into different categories, or “funds,” to stay organized. The funds need to be separated from one another because different contributions made to your organization may have allocations and restrictions set on them from the start. Each of these funds needs to be individually balanced and records need to be kept in separate ledgers. Nonprofits and for-profits differ significantly in many ways, from the part they play in the community to the way they approach their finances.

Nonprofit Accounting

Here’ we’ll overview the financial reports all nonprofit organizations are required to create regularly, as well as some optional reports that may help you run your business more effectively. Because this method of accounting tracks directly with money going into or out of your bank account, it’s by far the simplest method of accounting. And it’s preferred by many small nonprofits without experience in bookkeeping or the budget to hire a full-time accountant or outsourced accounting service.

Some key features of Intacct include accounts receivable/payable, activity tracking, asset management, bank reconciliation, compliance management, partnership accounting, and purchasing and receiving. Nonprofits and for-profits alike need to understand their cash flow and provide a statement about how it moves in and out of the organization. Generally, these reports are pulled once per month, reflecting the previous thirteen months. Using this report, nonprofits can determine the trends that are impacting the revenue and expenses incurred at their organization. We’ve covered briefly the differences between nonprofit and for-profit accounting practices. However, there is another distinction we need to cover when discussing accounting at nonprofit organizations and that is the difference between accounting and bookkeeping.

  • For-profits (just as the name implies) focus their energy and efforts on turning a profit.
  • In addition, checking in on the budget one or more times each month will allow you to adapt to change.
  • The core principles of nonprofit accounting are the same as for-profit accounting.
  • It’s never too late to get a leg up on managing your nonprofit accounting practices in a way that’s responsible, ethical, and practical.
  • Using Cash or accrual based accounting determines when to record revenue and expenses.
  • Corporate Matching Gift Programs – Nonprofit accountants have more flexibility when setting your nonprofit’s budget if you maximize your fundraising efforts.
  • However, because there are countless accounting firms, it’s best to choose one that shares your values and has experience with nonprofit organizations.
  • FreshBooks offers nonprofit accounting software that features simple invoicing, tracking for fundraising expenses and bills, and volunteer collaboration.
  • Your nonprofit budget is the planning document used to predict expenses and allocate resources for your organization.

To truly tackle and sustain the monetary health of nonprofits, staff, and team members need a strong understanding of the accounting principles that are unique to this industry. The financial resources, needs, and expenses of nonprofit groups are often incredibly different from other businesses or organizations that exist based on ownership and profit. A budget is not necessarily used in a for-profit business, but is considered an essential component of the accounting for a nonprofit business. This is because a nonprofit typically has quite limited revenue sources, and so must maintain tight control over its expenditures at all times. Consequently, its budget must be rigorously developed based on reasonable revenue expectations, with all cost variances being promptly investigated.

Financial Statements for Nonprofit Accounting

If you’re running a small team, their online software allows you to pay employees on the fly. Their software also features a dashboard view that’s great for a bird’s-eye view of overall expenses, including overhead expenses. Nonprofit accounting refers to the unique system of recordation and reporting that is applied to the business transactions engaged in by a nonprofit organization.

Araize offers two other programs you can purchase separately or bundle with the accounting program. With FastFund Fundraising, you can create detailed donor profiles, track cash, pledges, and in-kind gifts, and create customized donor receipts. When bundled with FastFund Accounting, FastFund Fundraising is available for as little as $20 per month, or $42 per month as a standalone product. The price for Sumac ranges from $35 per month to $250 and up per month, depending on your organization’s needs and number of records.

Rate this post
Sharing Is Caring:

Leave a Comment