Mastering Not-For-Profit Bookkeeping: Expert Guide for Nonprofits

A statement of cash flows is a financial statement that provides information about a nonprofit organization’s cash receipts and payments. It helps to illustrate how cash flows in an organization and cash balance changes over time. 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. Furthermore, nonprofit bookkeeping normal balance differs in some critical ways from for-profit bookkeeping too.

How to Start Bookkeeping for Nonprofits

• The average yearly salary of a nonprofit bookkeeper in the US is $62,587, depending on experience and the organization’s size​.
• This statement contains information on how much cash an organization generates from investing, financing, and operations.
• While both nonprofit and for-profit bookkeeping involve tracking financial transactions, there are key differences.
• The nonprofit bookkeeper is the front line in the battle for the accurate financial data you need to run your business, so let’s review the core responsibilities of a nonprofit bookkeeper.
• With a solid bookkeeping system, your nonprofit can ensure financial transparency, comply with federal and state regulations, and have a detailed record of your finances to help in the accounting process.

Because of this, the IRS requires that you obtain nonprofit status from your state before applying for tax-exempt status. For the most part, nonprofits can apply to the IRS to become exempt from federal taxes under Section 501. Restricted net assets are donations that have certain terms and restrictions attached, have special accounting procedures, and must be kept separate from other net assets. Get free guides, articles, tools and calculators to help you navigate the financial side of your business with ease.

• They can choose to hire in-house accountants or outsource their accounting to a specialized firm.
• However, there are several actions all nonprofits need to take to ensure data quality and reliability.
• Even minor errors in recording transactions can result in poor decision-making and potential legal issues.
• The net income on an income statement for nonprofits is what remains after subtracting total expenses from total revenues.
• Internal controls not only limit cases of fraud, but often aid in catching errors.
• For instance, if programs or projects are discontinued, funding falls through, or your funding increases, you can address the issues and adapt your strategy right away.
• If your nonprofit is looking to hire a fractional CFO, our J-SAT professionals are equipped to help you work through your toughest financial challenges, from forecasting cash flows to creating complex budgets.

What is the best software for nonprofit accounting?

When choosing a bookkeeper, updating financial information, and developing reports, you’ll want to keep in mind your organization’s mission and goals. The entry should contain information such as the donor’s name, the amount of money, and the date. An annual budget plan represents a roadmap for nonprofits and ensures the organization is on the right track. Nonprofit organizations are entities organized and operated exclusively for educational, social, professional, charitable, health, or other nonprofit purposes. While business stakeholders are concerned with profits, nonprofit stakeholders and board members want to know if the resources are properly utilized and allocated.

• This system ensures that debits and credits are balanced and accurately represent the organization’s financial position.
• Invoices are legal documents and should have your organization’s logo, name, address, email, phone number, invoice number, and date.
• These are (as the name states) general principles accepted by accountants in all sectors.
• Their focus is to record the data so the accountant can analyze this and perform more complex functions.
• If you want to become a bookkeeper for a nonprofit, try looking at internships that could help you learn more about the processes.

Not sure what size your nonprofit is? Use the handy guide below.

Automation can streamline bookkeeping processes, reduce manual data entry, minimize errors, and save time. Tasks like accounting services for nonprofit organizations bank reconciliation, invoice processing, expense tracking, and financial reporting can be automated to improve efficiency and accuracy. Nonprofits often receive donations with specific restrictions on how the money can be used. Bookkeepers must meticulously track these donor restrictions and ensure that funds are allocated and spent according to donor intentions. If outsourcing your accounting needs sounds like a tempting option for your organization, be sure to look for a firm that works specifically with nonprofits.

This approach encourages nonprofit staff to review their budgets from the ground up, itemizing and evaluating each expense. Instead, seek out an experienced nonprofit bookkeeping service you can trust. Getting started with nonprofit bookkeeping isn’t easy, but it is essential.

Make an Annual Budget Plan

Where exactly your income and expenses come from and how you group them in your budget will depend on the nature of your organization. An annual operating budget for a university will be very different than a budget for a small local art gallery. Once you’ve got a bookkeeping system and a bank account in place, you need some way of making sure the information in both of those systems lines up. Implementing internal controls is essential for safeguarding the organization’s assets and ensuring the accuracy and reliability of financial information. Understanding the key aspects of accounting will help your nonprofit better recognize the financial situation of your own organization. Because nonprofits operate the same as a for-profit business, overhead is necessary for any nonprofit organization to function.

Essentially, the Form 990 is the IRS’s method of evaluation to make sure your nonprofit is financially honest and legitimate. Filing the annual Form 990 is a key aspect of nonprofit accounting, and one that can’t be overlooked. Form 990 is the annual tax form that tax-exempt (e.g. 501(c)3) organizations are required to file each year to remain compliant with the regulations and requirements set by the IRS. 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. Luckily, here at Jitasa, we don’t think nonprofit accounting is tedious at all!

Nonprofit vs. For-Profit Bookkeeping

Failure to comply with these requirements can result in loss of tax-exempt status, significant penalties, and fines. 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. Take our 2-minute survey to find out Bookstime if outsourced accounting and bookkeeping is a good fit for your organization. It’s like having an in-house team dedicated to your organization, without the overhead cost of a full accounting department.

Pay Attention to Tax Obligations

A nonprofit’s statement of cash flow tracks a nonprofit organization’s cash and financial health. This statement contains information on how much cash an organization generates from investing, financing, and operations. In other words, effective bookkeeping practices will accurately record and monitor your financial activity throughout the fiscal year. When the time comes to report your financial activity or make a budgetary decision, you’ll be equipped with precise and thorough information. That way, you can be sure that your nonprofit maintains both its 501(c)(3) status and the trust of its supporters.