Bookkeeping for Nonprofits: Best Practices, Tips, Resources, FAQs

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. There are several ways nonprofit organizations can fulfill the duties of nonprofit bookkeepers and accountants. Caryl Ramsey has years of experience assisting in different aspects of bookkeeping, taxes, and customer service. She uses a variety of accounting software for setting up client information, reconciling accounts, coding expenses, running financial reports, and preparing tax returns. She is also experienced in setting up corporations with the State Corporation Commission and the IRS.

In those cases, nonprofit bookkeeping includes creating accurate invoices (that account for and collect any required sales tax) to track every sale. Nonprofits must maintain thorough and accurate financial records to comply with both Generally Accepted Accounting Principles (GAAP) and maintain their tax-exempt status with the IRS. They are responsible for implementing an accurate bookkeeping system that will reflect the financial transparency of the organization. It indicates how profitable the organization was during a given time period. It’s basically a financial statement that shows quarterly or annual revenue minus losses and expenses. Once you’ve established your designated bank account for your nonprofit, you’ll need to make sure that the data on your bank statements align with the data in your bookkeeping system.

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This will allow you to focus on the mission of your nonprofit, without having to worry about managing the books. Anyone running a nonprofit organization has more https://www.bookstime.com/ important things on their mind than bookkeeping. As I said before, all accounting professionals must follow GAAP (generally accepted accounting principles).

• Small nonprofits generally rely on their executive director to take on all of the financial responsibilities necessary to run the organization.
• Other times, this can happen when PayPal deposits were recorded directly to the bank account, even though they are actually still out with PayPal and haven’t been transferred down yet.
• A nonprofit’s statement of cash flow tracks a nonprofit organization’s cash and financial health.
• If they must, because your organization is small, set up a process where the bank statements are reviewed monthly by the Treasurer or another board member.
• The American Institute of Certified Public Accountants (AICPA) and the Financial Accounting Standards Board (FASB) have created standard accounting principles (GAAP) for nonprofits to follow.

All of our bookkeepers are US-based, Quickbooks ProAdvisor certified, and experts in nonprofit accounting. They also handle online bookkeeping for nonprofits and to handle all financial expenses error-free. While this is very exciting, it is only the first part of the process. You need to pay attention to the things in your records but not on the bank statement. But there needs to be an equal focus on accurate accounting and bookkeeping. Instead of prioritizing sales, nonprofits must demonstrate an appropriate use of assets and resources for charitable purposes.

Recording & Allocating Expenses

To fulfill your mission and impact the communities you serve, you have to raise and allocate funds wisely—That’s why bookkeeping for nonprofits is an essential part of what you do. Fund accounting is unique and nonprofit finances are often made more public than for-profit finances. Therefore, keeping a tight lid on your finances and ensuring that you’ve made the right decisions is even more important.

• Turn your receipts into data and deductibles with our expense reports that include IRS-accepted receipt images.
• Unrestricted net assets are any funds your nonprofit has received from donors that have no rules or conditions attached to them, like a pure cash donation.
• Since nonprofits have strict rules and guidelines on how their money is spent, it’s important to have an organized system in place to ensure that the financial process is handled properly.
• You probably didn’t start a nonprofit organization to stare at spreadsheets and Google things like “how to record an in-kind donation.”
• Bookkeeping for a nonprofit is vital because it proves how an organization is spending its funds.

There is some overlap between bookkeeping and HR departments when it comes to payroll, but most small to mid-sized organizations delegate this task to the non-profit bookkeeper. It’s crucial to understand the distinctions between a nonprofit bookkeeper and a nonprofit accountant. “This is a wonderful book that every bookkeeper in a nonprofit organization should have.” —Eusebio David, fiscal director, Federation of Multicultural Programs, Inc.

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Most nonprofits elect some kind of treasurer or financial officer to manage all of the organization’s finances. Using a personal bank account and keeping a shoebox full of receipts isn’t going to cut it. Essentially, you should view bookkeeping as the financial oversight process that’s necessary for operating your nonprofit daily.

This is especially important if your nonprofit would have otherwise bought those goods or services in question. Most nonprofits know that they’re supposed to keep track of monetary donations. While I never assume anything, I’m hoping that you’re already doing this.

Bookkeepers can be paid staff members or volunteers, but they should understand GAAP principles and fund accounting. Nonprofit bookkeepers must create accurate invoices for vendor payments, retail sales if they have a store, membership subscriptions, tuition fees, and more. Invoices help nonprofits track funds and give donors proof of their gifts. A bookkeeper with experience in fund accounting will create detailed fund accounting reports to help your accountant file quarterly statements and perform audits. Depending on the size of your nonprofit organization and the number of transactions, it may be wise to do bank reconciliations once a month.

But you still need to understand the different tax regulations for your nonprofit. For example, whoever is responsible for collecting donations shouldn’t be the same person updating your financial statements. Performing internal audits on a regular basis is an excellent way to keep everything in-check as well. Or maybe you have donors that buy items on behalf of your organization. It’s crucial that you account for all in-kind or non-cash contributions as well.

Cash Flow Statement

Then, plan out how you’ll spend your income in a way that achieves those goals. Think of bookkeeping as studying for a test—it’s the necessary first step you must take to prepare yourself for the big exam. In the same way, bookkeeping can prepare your nonprofit’s financial records and budget for tax filings, annual reports, and every other deep dive into your assets. Many nonprofits have earned revenue streams, like membership subscriptions, tuition fees, course enrollments, or sales at company stores.