Bookkeeping for Nonprofits: A Complete Guide

Invoices are legal documents and should have your organization’s logo, name, address, email, phone number, invoice number, and date. They should also include the donors’ information and a list of goods and services. When managing payroll for a nonprofit, bookkeepers must administer federal and state taxes, deduct money for employee benefits, and determine how funds are affected. At the end of the month, you must reconcile revenue and expense reports with your bank account and keep your accounts and reports up to date. As a nonprofit bookkeeper, you’re responsible for entering cash and in-kind donations, grants, membership payments, etc. You can determine whether these are one-time or regular experiences and choose how to raise funds for different programs that don’t gain as much financial support.

Nonprofit Compliance and Reporting

1-800 Bookkeeping offers expert services to streamline your financial processes and empower you to make informed decisions. Map each restriction in your chart of accounts and create checklists for allowable costs. Send thank‑you letters within 48 hours and year‑end statements before January 31 to aid donor tax filings.

Simple Steps to Build a Budget That Actually Works

• Under an accrual system, both the event revenue and the expenses are booked to October, giving you a clearer picture of how much money generated by the event.
• Nonprofit accounting may seem complex, but with a solid understanding of the fundamentals and strategic use of technology, it becomes easier to manage.
• Ensure compliance with accounting standards and regulations when generating financial statements.
• Managing cash flow is crucial for nonprofit organizations, as they often experience timing gaps between funding and expenses.
• Nonprofits in the United States who function as public charities must pass the IRS public support test in order to remain classified as a public charity.

Ignoring these restrictions can lead to legal issues and loss of donor trust. Implementing internal controls is essential for safeguarding the organization’s assets and ensuring the accuracy and reliability of financial information. Many small to mid-size organizations will delegate payroll processing to their bookkeeper. Although your company is different from many other nonprofit organizations, you all have similar needs when it comes to keeping your books straight.

Setting Up a Chart of Accounts

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.

• Accounting practices play a vital role in managing grants, ensuring compliance with funding requirements, and accurately reporting on the use of grant funds.
• Didn’t find the best accounting software for nonprofits (specifically, your nonprofit) on our list above?
• S activities, including program services, administrative costs, and fundraising expenses.
• Custom reporting gives your Board and Management Team the information needed to make wise decisions.
• Security features, functionality and access are subject to change without notice as deemed necessary by Right Networks.
• These standards provide guidelines for financial reporting, including the presentation of financial statements and the recognition of revenue and expenses.

Nonprofit Accounting Compliance Requirements

During planning, auditors evaluate risk factors and design procedures tailored to the nonprofit’s operations. Fieldwork involves examining financial records, internal controls, and regulatory compliance. The final audit report provides an opinion on the financial statements, offering assurance to stakeholders. Some nonprofits may also engage in other assurance services, such as reviews or agreed-upon procedures, to address specific concerns or requirements. Maintaining precise financial records is essential for nonprofit organizations. This includes tracking donations, grants, program expenses, and other sources of income and expenditure.

One of the best ways to ensure your organization’s accounting is held to a high standard is by using software that’s specifically designed for nonprofits. It’s a good idea to make use of nonprofit accounting software, which comes built-in with the features you need to keep your nonprofit’s accounting on track. These features include nonprofit reporting, GAAP compliance, and simplified tax filing for organizations. Nonprofit accounting is the process of tracking and managing the finances of a nonprofit organization. The essential elements of nonprofit accounting are quite similar to regular accounting principles for profit-driven businesses. They include revenue and expense records, financial statements, expense tracking, reporting and analysis, and budgeting.

Financial Controls and Internal Audits

It is important to create subcategories specific to your nonprofit’s operations within each category. Income accounts should include all sources of revenue for the organization, such as donations, grants, fundraising events, and program fees. Expenses should be categorized as salaries and wages, office supplies, rent or mortgage payments, utilities, and https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ other operating expenses. This also ensures transparency and accountability when presenting financial reports to donors or grantors. Nonprofit bookkeeping tracks donor restrictions and focuses on fund accounting, while small‑business bookkeeping centers on profit and owner equity.

• This ensures financial statements reflect the true cost of delivering services.
• Accounting for nonprofit organizations distinctly differs from accounting for for-profit businesses.
• This allows them to focus on their mission and positively impact the community.
• Their financial statements emphasize how resources are acquired, managed, and utilized.
• Audits and financial reviews play a critical role in the financial health of nonprofit organizations.
• This may include costs for staff salaries, supplies, equipment, and other program-related expenditures.

Accounts Receivable

That way, you can be sure that your nonprofit maintains both its 501(c)(3) status and the trust of its supporters. 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. Because this method of accounting tracks directly with money going into or out of your bank account, it’s by far the simplest method of accounting. And it’s preferred by many small nonprofits without experience in bookkeeping or the budget to hire a full-time accountant or outsourced accounting service.