A Beginners Guide to Nonprofit Accounting Nonprofit HR, Accounting, & Fiscal Sponsorship Services

Donors will be more likely to give if they feel confident that you will use their money wisely. This includes investing in necessary overhead expenses such as technology, personnel, and other operational costs. Taking care of overhead before seeking out donors for a nonprofit demonstrates financial responsibility and a commitment to efficiency—important decision-making factors for potential donors.

Implement checks and balances internally

Her work has been featured by business brands such as Adobe, WorkFusion, AT&T, SEMRush, Fit Small Business, USA Today The Key Benefits of Accounting Services for Nonprofit Organizations Blueprint, Content Marketing Institute, Towards Data Science and Business2Community. Quicken is best for very small nonprofits that do not have employees for whom they have to process payroll. All of these differences are summarized in the 990, a document unique to nonprofits. They include anything you pay for, from rent to payroll to purchasing supplies. Plus, non-cash outflows, like when you use or give away, resources you received as a donation.

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For example, many organizations meet the requirements that release temporarily restricted funds but don’t realize it because no one keeps track. In addition to salaries, nonprofit organizations should consider factors such as benefits, payroll taxes, workers’ compensation, etc. Mostly, I’ve seen incorrect financial information being used to run an organization.

Statement of activities

Nonprofit organizations have tax-exempt status with the IRS and operate in the best interest of their communities. That comes into play when we examine how nonprofit accounting differs from the best practices https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ a for-profit organization might follow. In addition, there are specific programs that non-profit organizations conduct, and the accounting for such programs are done separately to know separate surplus/deficit from such a program.

Set clear and realistic fundraising goals

Since resource development is often ongoing, budgets may require frequent modification. Good accounting software will also allow directors to compare budgeted amounts to actual amounts and make the necessary adjustments. Budgeting for nonprofits can become complex when it involves several overlapping categories, such as grants, programs, function, and nature. Since the Form 990 filed by the nonprofit becomes public information, you can learn much about a nonprofit by reading the information on Form 990. The website guidestar.org is a resource one can use to obtain financial (and other) information reported on nonprofits’ Form 990.

When you have accurate numbers for the cost and projected revenue of fundraising campaigns, you can end your campaign in the black and amplify programming. By understanding how well you have kept to your original budget, you can make adjustments that lead your programming through the entire year, increasing your impact. 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.

• In such situations, the immediate needs of the program take precedence over the building of operating reserves.
• In the context of nonprofit accounting, budget planning plays a crucial role in ensuring an organization’s financial stability.
• Zeffy’s absolutely free donor management solution securely stores and organizes your donor and member data so you can easily engage with the right supporter at the right time.
• Understanding this difference can help you distribute responsibilities amongst your team appropriately and determine which services your nonprofit may need to outsource.
• Following GAAP helps your organization build trust, attract investment or funding, and operate with fiscal responsibility.
• A statement of cash flows is a financial statement that provides information about a nonprofit organization’s cash receipts and payments.

📘 Chart of Accounts – Categorizes all financial activity by fundThe Chart of Accounts is the foundation of any accounting system. In a nonprofit context, it’s customized to track income, expenses, assets, and liabilities across multiple funds. Each account is coded in a way that reflects its purpose—allowing for clear segmentation of program costs, administrative expenses, and restricted versus unrestricted funds.

• The IRS provides this handy questionnaire to help you figure out exactly which parts of the tax code apply to your organization, and which form you’ll use to apply for tax-exempt status.
• Information reported by nature means that a line item is presented that contains expense results, such as for salaries, rent, electricity, supplies, interest expense, and so forth.
• Now that you have a better understanding of these key nonprofit accounting statements and reports and their purposes, it’ll be much easier for you to assess your organization’s financial health.
• The term “overhead” has historically had a negative connotation in the nonprofit sector, since spending funding on overhead was seen as taking that funding away from mission-critical work.
• On the other hand, nonprofits must try to reach as wide an audience as possible.

Mistakes are often unintentional, arising from a lack of oversight or experience. Volunteers often comprise a significant part of a nonprofit’s staff and may leave an organization with short notice, which can cause recordkeeping gaps. Like any organization that handles cash flow and pays taxes, nonprofits should invest in a professional accounting and finance team.