Nonprofit Accounting Basics

Nonprofit Accounting

As you might have guessed, accounts receivable is the opposite of payable, therefore, it is what is owed to you. It refers to the outstanding invoices you have given in return for a product or service. This is the part of the tax code that concerns charities, nonprofits, and religious organizations that are exempt from paying federal taxes to the IRS. One major difference between the statement of activities and the income statement is that instead of calculating net “profit,” the statement of activities calculates changes in net assets. The solution you decide on should also allow you to do some form of fund accounting. This means instead of piling your money into one big “cash” account, you’ll need to distinguish between and track separate buckets of money. Is a cloud-based accounting software solution with high ratings in user-friendliness and has all the features you’d expect from an effective accounting software .

Most organizations exempt from income tax under section 501 are still required to file Form 990 , which discloses your nonprofit’s revenues, expenses and changes to net assets to the public. Looking up a nonprofit’s Form 990—using services like—can tell you a lot about its financial state. For those new to accounting software, Intacct provides training options for all accounting knowledge levels as well as phone and email support services. Some key features of Intacct include accounts receivable/payable, activity tracking, asset management, bank reconciliation, compliance management, partnership accounting, and purchasing and receiving. Great nonprofits check in on their budgets and pull reports every month and quarter to make sure their finances are in check. To take it one step further, leverage your nonprofit accounting system to support your multi-year plans. Review your goals and any multi-year fundraising campaigns or projects on a regular basis to be sure your current financial strategies are geared toward achieving those goals.

Accountants must assume that their readers can account—that is, they are educated in this discipline. The remaining funds statements indicate the restrictions in more subtle ways. Being unrestricted, the quasi-endowment funds can be used in any manner and removed at the board’s discretion. Thankfully, some low-cost and free options are available for nonprofits that don’t have a lot of money to spend on specialized accounting software. Here are four of the best options with information and prices as of January 2022. Luckily, options exist for nonprofit leaders who need assistance with bookkeeping or require QuickBooks training. Depending on the level of in-house experience, consider hiring a bookkeeper full or part-time.

If your accounting responsibilities still roll up under your executives, consider outsourcing your accounting to the experts at a firm. They’ll help make sure all best practices and internal controls are implemented, ensuring smarter finances. Many brand-new organizations take this approach and simply allow their executive director to take on all financial responsibilities for the organization. However, the problem occurs when it’s time for the organization to grow. Not only will the accounting needs become more complex, but your executives will have other responsibilities and priorities on their minds. In addition, audits provide insight into the various opportunities that your organization has for financial stability and recording improvements.

Donors want to feel secure knowing their chosen nonprofits are doling out their financial contributions equitably. Accounting for nonprofits requires professionals who value not only integrity, but also full financial transparency. You don’t need to be an Excel wiz to understand your organization’s financials.

Furthermore, their financial statements should be more accessible to users and potential users in order to promote the kind of accountability that corporations have to their shareholders. Because nonprofit organizations enjoy tax-exempt status, any taxpayer should have the right to examine their financial statements and compare their financial performance with their objectives and accomplishments. Tax requirements for nonprofits are stringent, and it can be hard to track all your variable funding sources. Luckily, with the right accounting practices, you can ensure complete compliance and transparency when it comes to your nonprofit organization’s financials. This guide will help you better understand how accounting for nonprofit organizations works and the best methods to employ.

It also keeps track of when grant money is used and what it is used for. Moreover, it helps ensure that all grants are taken care of and running smoothly. A municipality’s statement of revenues, expenditures, and encumbrances reports operating encumbrances. It enables management to track resources, just as an internal project manager in a corporation tracks the budgeted costs of a program against actual costs.

Best For Large Organizations : Financial Edge By Blackbaud

A primary point of contact at Jitasa will lead the engagement with your nonprofit, but you’ll always have access to a full team of accountants. No matter how difficult your accounting problem, their team will work together to uncover the best solution. Let us know if you have any questions or if there’s anything specific you’d like to see. Net assets with donor restricted are designated for a specific use, such as funding a particular program, scholarship, or special project. Donations should be something your accountant or accounting staff monitor closely and record in compliance with GAAP.

Nonprofit Accounting

Get all of the information you need to efficiently manage your nonprofit with our monthly newsletter. Software solution will ensure you have the tools you need to accomplish your accounting goals. Both of these positions are vital to your organization’s success, but they shouldn’t be lumped together.

Why We Love Paro Accountants

The company also offers fundraising and payroll software for an additional cost. Typically, nonprofits would not hire a fractional CFO, but very much rely on volunteer treasurers.

You must record promises of future donations when you receive the pledge, rather than when your nonprofit receives the actual donation. Generally accepted accounting principles are a set of accounting procedures and standards issued by the Financial Accounting Standards Board .

Volunteers, for example, may provide unpaid labor, but that labor still has value that can affect both your taxes and overhead. Many nonprofit organizations don’t allocate resources for a professional accountant to manage their finances. Instead, they assign the task to an untrained staff member or volunteer.

If you are using a software to centralize your management that includes an accounting feature, nearly all of them are already GAAP compliant. Even if you won’t be the one in the deep-end of excel, speaking the same language as your treasurer, accountant, or software is a necessary evil that will serve you well in the future. As the leader of your nonprofit, you must know exactly where your internal and external contributions are going, not to mention understanding the financial health of your organization. This is essentially the nonprofit accounting version of the balance sheet equation.

Nonprofit Accounting & Finance

This would be an in-kind donation, viewed differently than a cash donation by the IRS. This is another example of an activity that should be differentiated and properly tracked. Mutual of America is a GCN preferred provider of group retirement plan services. With their outsourced nonprofit accounting services, your organization will be assigned a single point of contact, creating consistency and rapport between yourself and the Profit Matters team. They keep their own team updated with the latest financial compliance standards and provide educational materials about such matters to their nonprofit clientele as well.

  • While this might be out of your comfort zone, you are entirely capable of understanding the basics!
  • If a donor does not restrict the donations they provide, that money can be added to your organization’s annual fund and used for overhead, programs, or any other expenses.
  • It is extremely important for a nonprofit to manage their cash flow both efficiently and effectively.
  • Qbix partners with ADP,, Divvy, QuickBooks, Sage Intaact and others to tailor a bank-level secure accounting system to meet your specific needs.
  • Zoho Books lets you collaborate with employees and volunteers at different locations online, by adding remote employees and co-workers as individual users.

You should check in with your budget monthly, comparing and evaluating your budgeted revenue and expenses against your actual revenue and expenses. This will ensure that your organization is staying on track to achieve your goals. However, nonprofit accounting isn’t just about pulling important information. You also need to understand how to use this information to implement best practices for effective accounting decisions. In this document, you’ll record your nonprofit’s revenue and expenses from the year, to demonstrate how finances have been utilized. Essentially, the Form 990 is the IRS’s method of evaluation to make sure your nonprofit is financially honest and legitimate. Your nonprofit’s budget is the document that individuals at your organization are more likely to be familiar with.

Donor Restrictions

Anticipated expenditures are based on purchase orders, whose total is recognized as an encumbrance or obligation against the budget. Some accountants claim that this encumbrance accounting confuses the reader of the statement. The AICPA audit guide on colleges and universities enjoins them from recognizing encumbrances,2 and this practice has been urged for government organizations as well. Aplos is customizable online accounting software specifically designed for nonprofit organizations. The subscription includes all of the basic features you need for Nonprofit Accounting, and you can upgrade to gain access to additional features. Different feature configurations are available by organization type. For example, churches, nonprofits, payroll, and accountants each have separate configurations.

Here are some challenges that nonprofit accounting faces and how nonprofit accounting software can make these challenges disappear. There is good reason to believe that the reader of a corporate financial statement could benefit from having access to the same kind of information.

  • It also inspires confidence that your financial reporting is accurate and trustworthy which opens the door for lower interest rates on loans.
  • We apply the same skills, resources and process we use with for-profit clients to creating dramatic results for nonprofit clients.
  • This is the document that most represents the financial health of your nonprofit.
  • You may be successful in networking with particular software providers who may offer you a discounted rate on software.
  • Other businesses operating in Connecticut and include an organizational designation (such as “Inc.”).
  • With products like Chrome and Android, they want to make it simpler and faster for people to do what they want to online.

Meanwhile, organizations with impactful and effective accounting will be more likely to allocate their resources appropriately and drive their mission forward. Equipping yourself with the best software and people can make a world of difference for your organization. When you set up your software to record and safeguard your financial information, be sure you choose a solution that has specific configurations for nonprofit accounting, such as Quickbooks. Luckily, here at Jitasa, we don’t think nonprofit accounting is tedious at all! We’ve loved helping over a thousand organizations organize and maintain their finances. Due to this love of the craft and experience in the field, we decided to put together this guide to help nonprofits like yours better understand their accounting needs.

Why Churches Need Church Accounting Software

Windham Brannonis a recognized leader in providing tax, audit and advisory services, delivering the exceptional technical expertise executives, not-for-profits and high-net worth individuals count on, and more. Clients value the strong added benefit that comes with Windham Brannon’s personal approach to business and commitment to clients’ success.Click hereto learn more. Theisen Consulting LLCprovides consulting services in strategic and operational planning, facilitation, board governance and effectiveness, organizational development, and public policy. Provides both high-level and day-to-day support for nonprofits of all sizes. This means that no matter what information your nonprofit is searching for, Numbers 4 Nonprofits will help you find the answer.

Nonprofit Accounting

ACCOUNTS through Software4Nonprofits is a program offered by Cooperstock Software, a small company based in Canada. The company was founded by the treasurer of a religious finance committee because he had difficulties finding software that met his needs. He created ACCOUNTS as an alternative to the more expensive and complex accounting programs available at the time. While other versions of QuickBooks have free trials, QuickBooks Enterprise Nonprofit does not. This version starts at $1,275 per year, but the price can increase based on what additional services you need. QuickBooks integrates with several apps used by nonprofits including Kindful.

Restricted Funds: What Are They? And Why Do They Matter?

For example, this could be due to double-entry, deferred payments, human error, or checks that didn’t clear. Enter in Excel your bank balance in one column and the expected balance in another. If your state is required to be 100% compliant with the GAAP, then you must use the accrual method as your accounting standard. Often, they’re lumped together in conversation and even in practice. However, they are very different concepts, and understanding the difference will help you allocate tasks across your team.

The Jitasa team ensures that every organization it works with has all of the tools it needs to effectively record financial transactions and take appropriate action with its mission in mind. Now, let’s dive in to learn more about our favorite outsourced accounting firm— Jitasa. Angela Rockwell has served in many roles within the nonprofit sector including board member, grant writer, and event organizer. Angela holds a Bachelor of Science in Sustainable Development from Appalachian State University with a concentration in Community, Regional, and Global Development.

NIA is the nation’s leading property and casualty insurer exclusively serving nonprofit organizations in 32 states and the District of Columbia. Our members also enjoy innovative nonprofit risk management and member services. Nonprofits should track revenues and expenses for multiple program service areas and product lines.

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In Exhibit IV, funds are comparable to the individual projects in a project monitoring system. Fund accounting systems were devised to help trustees fulfill their legal obligation to use each of the institution’s various funds according to its guidelines.

When you outsource your finances to us, you’ll have access to professionals who are not only experts in finance, but also understand the intricacies of the nonprofit world. Not only is a financial audit NOT a bad thing, it can actually be a very good thing. A nonprofit audit is meant to ensure the accuracy of the organization’s financials, as well as the financial health of the organization. In addition, when audit results are published for the public, the results aid in financial transparency with your current and future donors. Filing the annual Form 990 is a key aspect of nonprofit accounting, and one that can’t be overlooked.