They are set aside for specific uses but can be freed from restrictions once certain conditions are fulfilled or time elapses. For instance, funds might be restricted until a project’s completion or a specified period, then revert to unrestricted status. Adopting these principles prepares your organization to show strong commitment to its mission while fulfilling financial stewardship demands.

Why Your Organization Needs Fund Accounting

• Nonprofits are often subject to specific financial reporting standards and must adhere to guidelines set by governing bodies.
• Start with a clear chart of accounts and assign each income or expense to a fund.
• Any nonprofit organization can benefit from implementing the best fund accounting processes.
• For large nonprofits, the Intuit Enterprise Suite solution provides additional project management and multi-entity reporting features that are particularly useful for tracking finances across locations.
• By following a set of best practices, your organization can effectively manage its financial resources, maintain donor accountability, and meet legal requirements.

More than just bookkeeping, the right ERP software for nonprofits provides a solid framework organizations can use to satisfy the https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ needs of all their constituents. Each of these programs has its own unique reporting requirements, so the school system needs a method to separately identify the related revenues and expenditures. This is done by establishing separate funds, each with its own chart of accounts. This also provides an audit trail that all moneys have been spent for their intended purpose and thereby released from the restriction.

• A well-structured chart ensures consistency and clarity in financial reporting.
• In the past, the general rule was that nonprofits should put at least 65% of their funding toward program expenses and spend no more than 35% on overhead.
• However, they aren’t the only tax-exempt organizations that can benefit from an endowment.
• Fund accounting categorizes funds into restricted and unrestricted categories, allowing for precise tracking and reporting.
• In addition to knowing how your nonprofit’s financial data is recorded and reported, you should also be familiar with how to use that information to make decisions.
• This method is simpler and may be more intuitive for smaller nonprofits, but it can lead to misleading financial statements.

Crafting Your Exit Planning: Strategies to Maximize Business Value

Nonprofits have unique tax requirements that they’ll need to abide by to keep their tax-exempt status. Internal Revenue Code 557 is a good resource that thoroughly breaks down the steps you’ll need to take to ensure your nonprofit maintains its tax-exempt status. This page also describes the tax reporting, filing, and notification rules for nonprofits. By understanding the basics of nonprofit accounting, your team will be better equipped to fund its mission and make 5 Main Benefits of Accounting Services for Nonprofit Organizations strategic decisions about your organization’s future. Use the tips above to get started, and don’t hesitate to contact an accountant (like our team at Jitasa!) with any questions or to take your systems to the next level. By accounting for restricted funds correctly, your nonprofit can stay accountable to and keep its promises to stakeholders, making them more likely to support you long-term.

• 📊 Statement of Activities – Tracks revenue and expenses per fundAlso known as the nonprofit income statement, this report details the organization’s financial performance over a specific period.
• Nonprofits must be diligent in maintaining accurate financial records to complete this form correctly.
• Determine how much fundraising income you’ll need to cover overhead costs and create a strategy for cost-cutting measures to help maximize the nonprofit’s resources.
• Nonprofits should establish a routine for reviewing actual performance against budgeted figures, enabling them to identify variances and adjust strategies as necessary.
• The Statement of Activities outlines the revenue and expenses over a designated period, showcasing how the organization generates funds and incurs costs.

Managing Overhead Costs

It enables nonprofits to monitor the inflow and outflow of funds, ensuring that each program or project is financially sustainable. This level of financial oversight is crucial for maintaining donor trust and securing future funding, as stakeholders want to see responsible management of their contributions. In nonprofit accounting, financial statements are structured to reflect the unique nature of nonprofit operations. Key financial documents, such as the statement of financial position and the statement of activities, provide insights into how resources are allocated toward programs and services. Understanding these statements is crucial for nonprofit leaders to ensure they are effectively managing their resources in alignment with their mission. This process not only improves internal controls but also facilitates a smoother audit process by providing detailed, organized data about the organization’s financial position.

Nonprofit Accounting Statements

We find that small to mid-sized nonprofits benefit most from investing in the Plus or Advanced plans of QuickBooks Online. The Plus plan includes all of the essential accounting features your organization needs in a cloud-based platform and provides access for up to five users. However, if you want to add more users to your account or leverage more complex tools like batch invoices and fixed asset auto-tracking, it’s worth upgrading to the Advanced plan.

Use of ANAFP’s website, resources, publications, tools, materials, and email lists are subject to ANAFP’s Terms of Use and Privacy Policy. This involves setting up procedures for approvals, separating duties (e.g., the person recording transactions shouldn’t be the same one approving expenses), and conducting regular audits. The original donation (called the principal) is invested, and the organization can only spend its income. Compiling these complex reports manually can be a headache—that’s where automated tools come in. If you haven’t done so, sign up for our free Nonprofit Accounting 5-Day Email Course. Even small mistakes can have big consequences—like losing your 501(c)(3) status or damaging your organization’s reputation.

• Before recording anything, organize funds and set clear budgets to ensure resources are allocated correctly for upcoming projects or needs.
• Regularly reviewing these metrics helps spot potential issues before they become problems.
• It’s designed to ensure that nonprofit organizations use donations and grants precisely as directed by donors, foundations, or government agencies.
• Most nonprofits aim to keep administrative and fundraising costs reasonable while maximizing program spending.
• When you can’t reduce an expense, be sure to find ways to describe its impact on the organization’s mission.