Bookkeeping for Nonprofits: A Basic Guide & Best Practices

If you’re using Donorbox for church fundraising, managing your finances would be a breeze with Donorbox’s powerful integration with QuickBooks. In this article, we’ll discuss key bookkeeping responsibilities and steps to efficient bookkeeping and provide 3 software options that can help. With the majority of the setup work now completed, you’re ready to start entering transactions for your nonprofit. The IRS receives more than 70,000 applications for tax-exempt status every year, so be patient when submitting your application. If you don’t hear back from the IRS within 90 days, call Customer Account Services to check on its status.

Since nonprofits don’t have owners, the financial position document summarizes total liabilities and net assets. Because nonprofit groups often receive special tax privileges, the pressure to have transparent and accurate accounting practices is even greater. For the most part, however, cash flow statements for non and for-profits are very similar. 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. Unrestricted net assets are any funds your nonprofit has received from donors that have no rules or conditions attached to them, like a pure cash donation. This is essentially the nonprofit accounting version of the balance sheet equation.

Step 2: Create a nonprofit chart of accounts

Chances are, it wasn’t tedious paperwork, challenging calculations, and compliance regulations. What likely drove you to join was (and continues to be), the nonprofit’s mission. Net assets can be broken down into bookkeeping for nonprofits restricted net assets and unrestricted net assets. 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.

For-profit entities are individuals, corporations, or partnerships that conduct business for profit. In this case, shareholders, investors, tax authorities, management, and suppliers are interested in the entity’s financial position, and that’s what for-profit accounting focuses on. This allows you to see which funds are available for general use, and which are restricted for specific purposes. Under cash accounting, you would show the revenue in September and the expenses in October.

Record every transaction

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. For instance, you’ll separate staff compensation from rent and utilities, even though both are overhead expenses. You can also build custom policies for each volunteer, project, or even location.

• Cash accounting may be a good choice for some small nonprofits with funding challenges.
• With the right approach and the best tool for the job, your organization can keep better books to help with transparency, annual reporting, and tracking your fiscal health.
• We recommend doing a bank reconciliation at least once a month to make sure your books are up to date and accurate, to help track cash flow, to prevent fraud and to detect bank errors.
• If you want to become a bookkeeper for a nonprofit, try looking at internships that could help you learn more about the processes.
• It is important to take care of overhead before seeking out donors for a nonprofit because it demonstrates financial responsibility and a commitment to efficiency.
• For the most part, however, cash flow statements for non and for-profits are very similar.

A nonprofit accountant may do all the above – including bookkeeping – depending on the organization’s size. A bachelor’s degree in accounting is the standard to become a nonprofit accountant. Most university accounting programs offer a nonprofit accounting course combined with government accounting. Although not required, additional education is usually required if you want a CPA license or other certification, such as a Certified Management Accountant (CMA) or Certified Fraud Examiner (CFE). Each non-profit organization is expected to comply with their state’s reporting requirements.