Bookkeeping for Nonprofits: A Basic Guide & Best Practices

Wave displays invoicing, payroll, and payments data updates, along with dashboards for cash balances. With Wave’s Pro Plan, you can automatically import your transactions into your bookkeeping software with easy bank account and credit card connections. To learn more about exactly which taxes your tax-exempt nonprofit might still be on the hook for, consult IRS Publication 557, or better yet, consult with a nonprofit tax specialist. 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.

Tips for Accurate Record-Keeping

• Melissa has worked in the accounting field for over 18 years, primarily in Accounting Management for retail companies.
• Following generally accepted accounting principles helps prevent issues with donors and audited financial statements.
• Fund accounting is a system used by nonprofit organizations and government entities to manage and track funds separately according to their specific purposes or restrictions.
• They should exhibit proficiency in generating accurate financial reports and demonstrate a commitment to maintaining transparency and integrity.
• Using the right software and seeking professional help when needed also helps.

Six months is even better, but a reserve of less than one month can cause potential cash flow problems. Every donation must be accurately documented, and this entails more 5 Main Benefits of Accounting Services for Nonprofit Organizations than recording the basic transaction details. It also involves documenting the donor’s restrictions, designations, or special handling requirements. Many foundations won’t even look at grant applications without audited statements. Melissa has worked in the accounting field for over 18 years, primarily in Accounting Management for retail companies. In her free time, she loves to read, travel and spend time with family.

• Implementing internal controls is essential for safeguarding the organization’s assets and ensuring the accuracy and reliability of financial information.
• Amanda is a detail-oriented bookworm committed to keeping all processes up to date and as efficient as possible.
• That way, you’ll identify potential bank errors, help track cash flow, and prevent fraud.
• Organizations need clear policies for valuing different in-kind gifts, from simple supply donations to complex assets like real estate.

Managing Accounts Payable and Receivable

You spend every day working to make your community a better place––you don’t want to have to https://greatercollinwood.org/main-benefits-of-accounting-services-for-nonprofit-organizations/ spend time worrying about where your money is. Additionally, you can publish the results of your audit to increase transparency with donors, grantors, and other stakeholders. When you can demonstrate responsible resource use and strong financial performance, you can build trust with your stakeholders and encourage them to continue lending their support. 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. However, overhead isn’t something to be afraid of—in fact, some overhead spending is necessary and good for your organization to operate. It can be difficult to find the middle ground here—expenses need to stay low, but you want to give your organization the opportunity to grow at the same time.

• So you never have to worry about a “surprise” bill at the end of the month, no matter how many questions you ask.
• She is Quickbooks Online certified, and takes care of bookkeeping,  reconciliations, and compiling financial reports.
• To effectively track all of your nonprofit’s revenue streams, expenses, and restricted funds, you’ll need the right tools.
• Megan specializes in data management, Excel wizardry, and report creation.
• And we can offer you on-demand advice on grant utilization, fundraising strategy, tax compliance, and other topics that often trip up growing nonprofits.
• The purpose of grant tracking is to ensure that grant funds are properly managed, used according to the grantor’s specific conditions and requirements, and reported accurately.
• In her spare time, Sarah loves to cook, golf, fish, and is always working on plans for her next vacation.

What Does a Nonprofit Bookkeeper Do?

For-profit accounting also focuses on revenue sources and production costs, such as materials and labor. Unfortunately, there aren’t many free nonprofit-specific accounting software options. (Nonprofit Treasurer, our favorite free option, recently closed its doors.) If you’re looking for fully featured free accounting software, though, your best bet is Wave Accounting. It offers accounting and bookkeeping features comparable to QuickBooks Online and Xero but for exactly no dollars.

Erica Strevel, Account Manager

Zoho Checkout is free as long as you accept only 50 donations—ever, not per month. Clients that need unlimited donations in multiple currencies will need to add a $9 a month Zoho Checkout plan to their existing Zoho Books plan. I could not be happier with the service they’ve provided and look forward to continuing the relationship. To find more about our on-boarding procedures and how we calculate prices click here. Yes, switching from other accounting apps or products to Wave is easy!

QuickBooks

If you have to cut costs at your organization, see if you can reduce overhead spending before taking any funding away from your programs. There are penalties for filing each of these forms late, and failing to file them for several consecutive years risks your organization’s exempt status. Work with your accountant to plan ahead and ensure you can complete all of them accurately and on time.

That way, you’ll identify potential bank errors, help track cash flow, and prevent fraud. The option you go for should also enable you to do fund accounting (i.e., use different accounts for different purposes). Nonprofits have strict rules regarding funding sources and how they should be spent.

Understanding the statement of cash flows is essential for assessing the financial health and sustainability of any nonprofit organization. Many nonprofits have small staffs and tight budgets, making it difficult to dedicate personnel to bookkeeping and financial reporting tasks. You may also need to provide other information, like unrealized gains or losses on investments and noncash transactions, such as depreciation or amortization expenses. As with any financial statement, ensure that all figures are accurate and up to date before submission. Complying with the generally accepted accounting principles (GAAP) will ensure that your nonprofit reports financial information accurately, transparently, and consistently.