8 Best Practices for Nonprofit Bookkeeping

Murray Dropkin, C.P.A., M.B.A., is president of CMS Systems, Inc., a consulting firm that specializes in improving the operational and financial operations of nonprofit and for-profit organizations. He has published extensively in the field of nonprofit accounting and is coauthor of The Budget-Building Book for Nonprofits and The Cash Flow Management Book for Nonprofits, both from Jossey-Bass. He co-edits Nonprofit Report, a monthly newsletter on nonprofit accounting, taxation, and management. He is coauthor of the three-volume Guide to Audits of Nonprofit Organizations and frequently speaks at professional meetings and consults around the country. MoneyMinder is a simple and easy-to-use online program that you can access anywhere. If you’re the treasurer of an organization, you can use the program to manage budgets, handle bookkeeping duties, reconcile bank accounts, and generate detailed reports.

• We selected the top seven accounting software companies for nonprofits after reviewing 20 different well-known companies.
• A way to create financial statements that are accurate and reliable.
• This is more or less the nonprofit version of a balance sheet used to determine profits in a for-profit company.
• For example, churches, nonprofits, payroll, and accountants each have separate configurations.
• You can reach out to us for quality consultations whenever needed.

On the other hand, nonprofit or fund accounting software offers a more flexible chart of accounts structure that is specifically tailored to nonprofit organizations. Accounting software for nonprofits is a specialty type of accounting software. It performs some of the same functions as regular accounting software, such as income and expense tracking, payroll, and accounts receivable. In addition, it has specific functions designed to help nonprofits with their accounting needs. For example, accounting software for nonprofits will be able to accept and track donations through a portal and keep track of donor receipts.

Bookkeeping Services For Nonprofits

An otherwise qualified bookkeeper with only for-profit experience can be a good candidate for your organization. But if you hire such a person, make sure he or she understands that there are differences between for- and nonprofit accounting. Any hire will need to get up to speed quickly on recording such items as pledges, donated goods and services, and restricted donations.

Bench assumes no liability for actions taken in reliance upon the information contained herein. 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. But proper accounting is crucial to the survival of your organization.

Understand Tax Regulations for Nonprofits

This is a vital aspect of accounting that helps define nonprofits. Unlike for-profits, nonprofits are required not to distribute their net earnings to the leaders at the organization. In the rest of this article, we’ll cover the basics and best practices that all nonprofit professionals should know about accounting. Understanding the basics will help you better manage and plan your programs in a way that brings the most value from your finances. However, that paperwork, number crunching, and other tedious tasks come with the territory of running an effective nonprofit organization. One such activity that many nonprofit professionals don’t want to deal with is nonprofit accounting. Nonprofit cash flow statements will refer to “change in net assets” instead of “net income,” and will sometimes list cash flows that are restricted to certain uses.

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. Your nonprofit’s balance sheet is also known as the statement of financial position. This is the document that most represents the financial health of your nonprofit.

Follow Accounting Standards Outlined by Professional Organizations

Submit grant proposals and contracts to stabilize your funding streams. Be aggressive in seizing funding opportunities to sustain and expand your organization’s existing programs while adding new ones. We’ll work with you to establish policies that secure data at your organization. Plus, we have our own policies, procedures, and systems that are designed to keep your financial information safe. Some items are easily taken home from the office and forgotten about. Take regular inventory of the computers, cell phones, and other items that you allow your organization’s staff members to work with. These are general principles accepted by accountants in all sectors.

However, the problem occurs when it’s time for the organization to grow. Not only will the accounting needs bookkeeping become more complex, but your executives will have other responsibilities and priorities on their minds.

Need a Better Bookkeeping Solution?

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. A bookkeeper can help select software as well as provide training and support. If we are a match and depending on the service offering you need, we’ll do a discovery session to get better acquainted. We may also conduct a data file review after the session if necessary. You will hear from our business development team within one business day to schedule a discovery session or call. We set up and discuss your accounting system and integrated apps.

It’s used to categorize your different revenue sources and expenses. Plus, you can use this document to review your change in net assets from the beginning of the year to the end of the year. In exchange for the tax-exempt status the Internal Revenue Service grants to qualified nonprofit organizations, the organization agrees to governance by its nonprofit board or voting members.

Best for Donation Tracking

After the meeting, you will receive a follow-up email to provide us access to your systems to conduct a diagnostic review of your accounting system and records. Member benefits specified in membership agreements embody goods and/or services that a nonprofit has promised to transfer to members. These promises are deemed “performance obligations”, and the transaction price for each good/service must be accounted for when recording membership dues. This free accounting program is a double-entry accounting program that is designed for users who are knowledgeable about bookkeeping practices. Your organization can also follow receipts and payments automatically. Nonprofit accounting basics are more complex than accounting for a for-profit business, but using industry-specific software will make the process much easier. We discuss personal assets, provide examples and their importance in your financial life.

Strategize what you want your nonprofit to achieve over the next calendar year. According to the IRS, any in-kind donation under $5,000 can be calculated as fair market value. If the donation goes over the $5,000 mark, you should formally get an appraisal from an expert in the field. What the volunteer would have charged any regular client for the same amount of work is what fair market value is.

Internal controls act as a system of “checks and balances” for staff, board members, and outside vendors. Each year we are able to prepare and send 1099s upon request, as well as advise you on how to read your reports. Every minute you spend rifling through receipts and squinting at financial printouts is another minute your cape stays hanging in the closet. Recording incoming donations requires breaking donations into a category for donor restrictions and one for those without.

• Here’s how to prevent this kind of bad bookkeeping from damaging your nonprofit.
• Learn how to differentiate between capital and operating leases, how to determine which lease your asset falls under, and how to record the leases in the accounting system.
• Nonprofits often make mistakes in this categorization when collecting various kinds of donations or making money on something that is not expressly related to their purpose–unrelated business income .
• Where exactly your income and expenses come from and how you group them in your budget will depend on the nature of your organization.
• Since its launch, it has become a household name, earning over $7.7 billion in revenue in 2020.

It can be helpful to talk with an expert to get direction, advice, or just another opinion. For more information or virtual bookkeeping service, contact us today. With us, you can be confident that your books will always be accurate and up to date. Let us handle and maintain your books while you focus on your mission without being derailed. Allocate time, resources, and budget to your mission for greater and long-term success.

This much-needed resource provides those with little or no bookkeeping experience with practical advice in a highly accessible format. It’s important that you’re using a bookkeeper and accountant who have experience preparing financial statements for nonprofit organizations. If you do something incorrectly, it could have a damaging effect on your organization. No one understands the complexity and nuance of nonprofit bookkeeping quite like the compliance professionals at Foundation Group. The nonprofit, like the for-profit, is interested in its bottom line. Its directors want to know, for example, how much equity the nonprofit has accumulated or how much its revenue exceeds its expenses. Net assets determine whether the nonprofit’s work is sustainable or if there is room for growth.