Bookkeeping for Nonprofits: A Basic Guide & Best Practices

For effective financial management, both roles should work together seamlessly. While bookkeepers maintain the accurate daily records that accountants need for https://holycitysinner.com/top-benefits-of-accounting-services-for-nonprofit-organizati/ analysis, accountants set up the systems and procedures for the bookkeepers to follow. This split helps donors see how much of their money goes directly to the cause. Most nonprofits aim to keep administrative and fundraising costs reasonable while maximizing program spending. While businesses track profits, nonprofits track if they’re achieving their goals. For large nonprofits, the Intuit Enterprise Suite solution provides additional project management and multi-entity reporting features that are particularly useful for tracking finances across locations.

System of Accounting

• An outside CPA can perform agreed‑upon procedures annually to test controls.
• The Internal Revenue Service (IRS) is responsible for overseeing these organizations and ensuring they comply with applicable tax laws.
• Bookkeepers and grant managers regularly review expenses and progress to ensure compliance with the grant’s terms, including spending deadlines and reporting requirements.
• This version of QuickBooks Online offers the accounting features and functionality nonprofits need, including the ability to manage nonprofit finances, file Form 990 and file taxes.
• The best nonprofit accounting software should include all the core accounting features and functionality all businesses need, such as the ability to send invoices and track spending.

Financial statements provide insight into how much money your nonprofit has, where you spend it, and how it’s used. As mentioned, nonprofits have to follow strict rules to justify their financial position and fundraising expenses. For-profit entities are individuals, corporations, or partnerships that conduct business for profit. In this case, shareholders, investors, tax authorities, management, and suppliers are interested in the entity’s financial position, and that’s what for-profit accounting focuses on. Think about your budget like a roadmap to where you’ll spend your money.

Do all nonprofits have to file Form 990?

External audits objectively evaluate financial statements, enhance credibility, and ensure compliance with accounting standards and regulatory requirements. It helps nonprofits analyze past financial performance, project future income, and expenses, and make informed decisions regarding program activities, fundraising efforts, and resource allocation. Fundraising forms a vital component of a nonprofit’s revenue management strategy. It typically involves organizing events, running campaigns, and soliciting donations from individuals, corporations, or other organizations.

Tips for Maintaining Consistency

Unlike for-profits, nonprofits don’t have equity because they don’t have owners, and that’s the biggest difference between a balance sheet and a statement of financial position. Some are unrestricted net assets and some are considered restricted net assets. The option you go for should also enable you to do fund accounting (i.e., use different accounts for different purposes).

Filing IRS Form 990 and Understanding Its Components

For more information about how to create a budget, accounting services for nonprofit organizations check out the National Council of Nonprofits guide to Budgeting for Nonprofits. Nonprofits have tight rules around what they can and can’t spend money on. They need an organized system that makes sure purchases are ordered, budgeted for, and fulfilled properly from the get go. Churches can choose from many affordable online options, including QuickBooks, Aplos, AccuFund, and more. If you’re using Donorbox for church fundraising, managing your finances would be a breeze with Donorbox’s powerful integration with QuickBooks. In this article, we’ll discuss key bookkeeping responsibilities and steps to efficient bookkeeping and provide 3 software options that can help.

Fully Staffed Accounting Team

• This allows donors, board members, and other stakeholders to assess the organization’s performance and financial stability.
• They allow you to compare your budget’s goals to the income and spending over the budgeted year.
• You are now able to determine whether to outsource your accounting and bookkeeping requirements to a professional or to perform them in-house with the assistance of your treasurer or financial officer.
• A well-planned cash flow is essential for nonprofits as it ensures that the organization has sufficient funds available when needed.

This ensures spending is in alignment with the grant’s purpose and budget. Implementing robust financial controls and conducting internal audits helps identify and mitigate potential risks, errors, or fraud. Internal controls may include segregation of duties, regular bank reconciliations, and review processes for financial transactions. Expenses should be allocated correctly to the appropriate programs, administration, and fundraising categories.

Nonprofit bookkeeping best practices

• In contrast, nonprofit accounting is geared toward stewardship and achieving societal goals.
• When donor software syncs with accounting ledgers, you avoid duplicate data entry and ensure contribution totals match revenue reports.
• And ensuring that every receipt, bill, check, credit card charge, and bank transfer gets into your system is a core function of nonprofit bookkeeping.
• However, consulting with accounting professionals and legal experts specializing in nonprofit accounting is always recommended to ensure compliance with specific laws and regulations in your jurisdiction.
• Most guides either oversimplify nonprofit accounting or bury the important financial information under technical jargon.
• In those cases, nonprofit bookkeeping includes creating accurate invoices (that account for and collect any required sales tax) to track every sale.
• Such features may include the ability to track and allocate restricted funds, process payroll and pull reports to aid you in filing your 990 form.

By handling your nonprofit’s accounting responsibly, you’ll earn the trust of donors and foundations — and more easily accomplish your goals. Generally accepted accounting principles (GAAP) are a set of accounting procedures and standards issued by the Financial Accounting Standards Board (FASB). All public companies in the U.S. must follow GAAP, and private companies generally do as well. Nonprofits must also follow GAAP standards, although their rules are sometimes slightly different from those of for-profit companies. We have financial relationships with some companies we cover, earning commissions when readers purchase from our partners or share information about their needs.