bookkeeping basics what every nonprofit bookkeeper needs to know

Take our 2-minute survey to find out if outsourced accounting and bookkeeping is a good fit for your organization. It’s like having an in-house team dedicated to your organization, without the overhead cost of a full accounting department. Most organizations will also need to track payments they are owed (accounts receivable), bills that they haven’t paid (accounts payable).

What are 3 duties of a bookkeeper?

A bookkeeper is responsible for recording and maintaining a company's daily financial transactions. They also prepare reports for the managers and trial balances to assist the accountants. A bookkeeper may also help you run payroll, collect debts, generate invoices and make payments.

By addressing these opportunities for improvement now, you’ll help keep financial data secure and well-reported in the future. In order to make the best financial decisions, nonprofit professionals should understand some accounting best practices. In this section, we’ll cover some best practices that nonprofit accountants can use to better handle their finances. But, when you grasp how to read various accounting documents, it becomes much easier to understand how finances function and move at your organization.

Streamlined accounting for nonprofits

In addition, checking in on the budget one or more times each month will allow you to adapt to change. For instance, if programs or projects are discontinued, funding falls through, or your funding increases, you can address the issues and adapt your strategy right away. It’s important to review and adjust the spending budget for the remainder of the year to cut back expenses nonprofit bookkeeping if necessary, or to further fund your mission if you receive unexpected funding. This nonprofit accounting guide is great for anyone wanting to learn the foundation of nonprofit accounting. Fund accounting enables nonprofits to allocate their money into different groups or “funds” in order to keep them organized and only spend funds on what they’re designated for.

bookkeeping basics what every nonprofit bookkeeper needs to know

But proper accounting (and the analysis it lets you do) is crucial to the survival of your organization. Get the latest nonprofit news, funding opportunities, job openings, and more delivered to your inbox with Philanthropy News Digest newsletters. Sharon Farris has been involved in the grants industry for more than ten years. She is the president of Farris Accounting & Consulting Training Services (FACT$) as well as the former president of the American Association of Grant Professionals (AAGP) Montgomery. Since 2017, you’re also required to disclose the “nature” of the activities your nonprofit lists on this report. For example, what percentage of your postage needs are for marketing materials and direct mail fundraising versus administrative duties like paying bills.

Generally Accepted Accounting Principles for Nonprofits

Both to track money coming into your organization and share with your donors as proof of their gift. While tax-exempt status might be determined by the IRS and federal law, nonprofit status is determined by state law. Because of this, the IRS requires that you obtain nonprofit status from your state before applying for tax-exempt status. Restricted net assets are donations that have certain terms and restrictions attached, have special accounting procedures, and must be kept separate from other net assets. You probably didn’t start a nonprofit organization to stare at spreadsheets and Google things like “how to record an in-kind donation.”

A purchase order is a document sent from a purchaser to a vendor to confirm a specific purchase of goods or services, and are generally a great way to make sure you and your supplier are always on the same page. Once your vendor signs it, it’s a binding contract that tells you exactly how much you ordered from your supplier, how much you paid, and when the supplier agreed to deliver your order. If your accounting responsibilities still roll up under your executives, https://www.bookstime.com/ 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. If outsourcing your accounting needs sounds like a tempting option for your organization, be sure to look for a firm that works specifically with nonprofits. That way you can rest assured that they’ll be well-versed in fund accounting and able to answer nonprofit-specific questions.

Statement of Cash Flow

They need an organized system that makes sure purchases are ordered, budgeted for, and fulfilled properly from the get go. The promise of artificial intelligence (AI) became magnified on a global scale with the introduction of Chat GPT. AI tools are exciting because they offer a level of efficiency never before possible for content creation, process automation, and productivity. It is important to not only understand the shortcomings of this technology but to also protect your organization from possible data privacy, security, and reputational risks. Nonprofit accounting professionals must adhere to specific guidelines when they create reports. The primary guidelines your organization should know about are the GAAP standards.

bookkeeping basics what every nonprofit bookkeeper needs to know

We recommend doing a bank reconciliation at least once a month to make sure your books are up to date and accurate, to help track cash flow, to prevent fraud and to detect bank errors. An income statement for nonprofits is a financial statement that shows the sources and uses of funds over a set period of time. It typically details all revenue, such as contributions, grants, salaries, administrative costs, and program costs. You may also need to provide other information, like unrealized gains or losses on investments and non-cash transactions, such as depreciation or amortization expenses. As with any financial statement, ensure that all figures are accurate and up to date before submission. Our professional opinion is that the majority of nonprofits will benefit from outsourcing their bookkeeping and accounting needs, working directly with nonprofit accounting experts.

Statement of functional expenses

Most nonprofit-friendly accounting software like QuickBooks Aplos or Nonprofit Treasurer will allow you to generate financial statements automatically. Although it’s possible to manually generate financial statements from your ledger or spreadsheet, it takes a ton of accounting knowledge and time to do it right. In most cases, it’s better to let your accounting software or a bookkeeper take care of this step for you. Seamlessly organize financial statements and donor data with Quickbooks nonprofit accounting software. Once you’ve got your bookkeeping system setup and have started generating financial statements, the final piece of the nonprofit accounting puzzle is getting your tax obligations straight.

  • Nonprofit accounting professionals must adhere to specific guidelines when they create reports.
  • You may also need to provide other information, like unrealized gains or losses on investments and non-cash transactions, such as depreciation or amortization expenses.
  • These are (as the name states) general principles accepted by accountants in all sectors.
  • DEBRA L. RUEGG is a principal and senior consultant with the LarsonAllen Public Service Group.
  • She is the president of Farris Accounting & Consulting Training Services (FACT$) as well as the former president of the American Association of Grant Professionals (AAGP) Montgomery.
  • Your nonprofit’s statement of cash flow shows how funding and cash moves in and out of the organization.

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. 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. And it’s one of the essential roles of bookkeeping in a nonprofit organization.

Picking an accounting method

You should be forewarned that the world of accounting and bookkeeping has its own rules and vocabulary. A word like credit has a specific meaning, and, as much as you may or may not like how the term is used in bookkeeping, you frankly don’t have a choice in the matter. Save your creativity for efforts other than bookkeeping and you’ll be much happier in the long run. Ironically, as much as bookkeeping is a science, it also requires a certain degree of faith. Instead of fighting them, accept them at face value knowing you’ll eventually see how everything comes together in the end. Gail Sessoms, a grant writer and nonprofit consultant, writes about nonprofit, small business and personal finance issues.

This book would not have been possible without the support and hard work of many individuals. After you’ve registered as a nonprofit with your state, the next step is to apply for tax-exempt status under Section 501. For the most part, however, cash flow statements for non and for-profits are very similar. If you’ve dealt with for-profit cash flow statements before, this should look very familiar. This is essentially the nonprofit accounting version of the balance sheet equation. Nonprofit-friendly accounting software shouldn’t just allow you to create professional-looking budgets.

Deloitte launches $75 million tax and accounting diversity initiative

No matter how big or small nonprofits are, internal controls are essential for effective nonprofit accounting. Public viewpoints on overhead expenses hurt the nonprofit industry a great deal. Overhead includes those expenses that nonprofits use to cover administrative costs, market their mission for fundraising, and pay for other internal expenses that help the organization grow. Essentially, overhead expenses are those that nonprofits use to pay for anything that isn’t a program directly related to the organization’s mission. Your nonprofit budget is the planning document used to predict expenses and allocate resources for your organization. It details both the costs that your organization will incur as well as the revenue you expect to receive over a set period of time, usually a year.

  • This will ensure that your organization is staying on track to achieve your goals.
  • Ask your bank whether they offer business chequing accounts tailored to nonprofits.
  • Nonprofit accounting is a vital part of any organization, as it allows the nonprofit to track its finances and manage its resources.
  • The first step to accounting for nonprofits is choosing whether your organization should use cash-basis or accrual-basis accounting.
  • Get the latest nonprofit news, funding opportunities, job openings, and more delivered to your inbox with Philanthropy News Digest newsletters.
  • By considering these factors, you can ensure that your nonprofit organization has the necessary resources to reach its objectives and is in line with GAAP standards.

They’ll have experience helping organizations like yours minimize their tax bill and make sure you aren’t breaking any tax code rules. 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. Once you’ve got a bookkeeping system and a bank account in place, you need some way of making sure the information in both of those systems lines up.