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Nonprofit Bookkeeping and Accounting Services: A Guide to Basics and Best Practices

Posted on 03/01/2024

A Guide to Nonprofit Bookkeeping and Accounting Services: What captivated you when you first began working at your nonprofit? What motivated you to start working there in the first place? Most likely, it wasn’t complicated computations, arduous paperwork, or compliance rules. The nonprofit’s purpose was (and still is) most likely what motivated you to join.

However, managing a successful charity organization entails doing a lot of paperwork, analyzing numbers, and other unpleasant activities. Nonprofit accounting is one such task that many nonprofit workers would want to avoid.

Whether your nonprofit chooses to outsource both its nonprofit bookkeeping and accounting services or simply one, you can be confident that we will offer specialized services created to match your organization’s unique needs.

The accountants are here to assist your nonprofit in recovering control over your money, enabling organizational development. This includes generating spending records, creating sophisticated budgets, and strategizing cash flow control.

Nonprofit bookkeeping and accounting services:

Your business has to be aware of what you’re looking for in each job whether you opt to employ internally, outsource the services (which is our suggested course of action), or seek volunteers. The following lists the key distinctions between nonprofit bookkeeping and accounting services.

Nonprofit bookkeeping

  • Nonprofit Bookkeepers do not require specialized Education or a CPA
  • Takes care of the day-to-day needs of the nonprofit

Nonprofit accounting

  • Nonprofit accountant requires a four-year degree and most are CPA-Certified
  • Analyses finances and creates actionable next steps for the nonprofits.

 Ready to learn more? Let’s dive in.

What Is Accounting for Nonprofits?

The accounting system that aids in storing and retrieving a not-for-profit organization’s financial information is known as non-profit accounting. These businesses are conducted for the benefit of society rather than for financial gain. Thus, keeping track of accounts that are utilized in support of pertinent causes is important.

A nonprofit organization’s particular method of recording and reporting commercial transactions is referred to as nonprofit accounting. A nonprofit organization has no ownership stakes, operates without the intention of making a profit, and receives sizable contributions from outside sources without expecting anything in return.

How Does Accounting for Nonprofits Operate?

A non-profit is reputable and trustworthy when it has non-profit accounting. The businesses provide financial statements that provide information to the public about how money was used. Donors suspect the misuse of cash and resources if they see any manipulation with the documents. On the contrary, if the records are reliable, people continue making donations or providing resources and money to worthwhile projects.

Accounting for non-profit organizations is more concerned with how the entities use the contributed and given resources than it is with financial statements that show earnings. The organizations lose faith if the financial statements show inconsistencies. To report the data appropriately, a non-profit accounting business must be cautious enough to perform extensive computations. It is advised that one obtain the necessary non-profit accounting certification before performing this sort of accounting.

However, the financial statement of non-profit organizations primarily includes three reports:

  • A statement of the financial position
  • A statement of the activities
  • A statement of the functional expenses

Additionally, non-profit organizations run several distinct programs, and the accounting for each of these programs is done independently to identify the surplus and deficit associated with each one. Organizations now employ effective non-profit accounting software that complies with all regulations.

Nonprofit Accounting Concepts

The following ideas used in nonprofit accounting are different from those used in for-profit entities’ accounting.

  • Net Assets

Since no investors are willing to take an equity position in a charity, net assets are used in the balance sheet in place of equity.

  • Restrictions on donors

There are two categories for net assets: those with donor limits and those without. Donor-restricted assets can only be utilized in specified ways and are typically allocated to just certain projects. Any use is permitted for assets that are not subject to donor limitations.

  • Programs

A nonprofit organization’s main goal is to deliver a service, sometimes known as a program. A nonprofit may run a variety of distinct initiatives, each of which is individually budgeted. So, it is possible to see the costs and earnings related to each program.

  • Organizational and managerial skills

The management and administration categorization, which relates to the overall overhead of a nonprofit, is where costs may be assigned. Donors want this number to be as low as possible since it indicates that most of their money is going directly to programs.

  • Raising Funds

A nonprofit’s sales and marketing efforts, such as solicitations, fund-raising events, and the creation of grant bids, fall under the definition of fundraising, which may be costed.

  • Accounting Statements

The financial statements created by a nonprofit organization differ from those released by a for-profit organization in several ways. For instance, the statement of activities takes the place of the income statement, and the balance sheet is replaced by the statement of financial position.

Organizations, whether for-profit or nonprofit, provide a statement of financial flows. A nonprofit does not have equity, hence there is no nonprofit counterpart for the statement of stockholders’ equity.

  • Budget

While a budget may not always be employed in for-profit enterprises, it is seen to be a crucial part of nonprofit accounting. This is because nonprofit organizations often have fairly limited cash sources, necessitating constant strict supervision over their spending. As a result, its budget needs to be carefully created using realistic income projections, with all expense variations being swiftly looked into.

What functions a bookkeeper carry out for a nonprofit?

Nonprofit bookkeepers are in charge of the organization’s daily operations. To manage all financial costs without error, they also perform online bookkeeping for NGOs. Nonprofit bookkeeping is not in any way inferior to accounting, but the task is easier and requires less precision.

How Do I Do Bookkeeping for a Nonprofit?

Inquire about bookkeeping services. The choice of software, as well as assistance and training, may be helped by a bookkeeper.

  • Hire a bookkeeper with experience in fund accounting.
  • Create a bank account specifically for the non-profit to prevent combining personal and business accounts.
  • Observe the in-kind offerings (goods and services are exchanged rather than money)
  • Budgets need to be located and monitored.
  • Producing and reviewing financial reports.

Additionally, non-profit organizations run several distinct programs, and the accounting for each of these programs is done independently to identify the surplus and deficit associated with each one. Organizations now employ effective non-profit accounting software that complies with all regulations.

Bookkeeping services for nonprofits

Among the bookkeeping services offered to nonprofit organizations are the following:

  • Simplest Forms of Data Entry

Bookkeepers keep detailed records of all donations, payments, and other financial transactions on a well-organized software platform or spreadsheet.

  • Making Payments and a Deposit

Non-profit bookkeepers are in charge of handling general purchases and deposits.

  • A single financial side is recorded.

For instance, a bookkeeper will cover the costs of electricity, rent, water, and other essential operational expenses.

  • Writing checks and making deposits

Non-profit bookkeepers manage regular deposits and payments. They then input this data into the relevant spreadsheet or piece of software.

  • Payroll Management

When it comes to payroll, there is some overlap between accounting and HR departments, but the majority of small- to medium-sized businesses give this responsibility to the non-profit bookkeeper.

What distinguishes an accountant from a bookkeeper for a nonprofit?

Your accountant serves as more of a number detective, compiling reports and analyzing them to make financial choices on behalf of the organization, whereas a nonprofit bookkeeper enters and organizes financial data for an organization.

A four-year degree is required to work as an accountant. The majority of the time, this degree is in accounting. Accountants can also take a specific exam to demonstrate their expertise and establish their reputation as accountants. An accountant will receive CPA certification after passing this exam, designating them as “certified public accountants.”

Your accountant is in charge of tasks like the ones listed below:

  • Examining each account.

To ensure that the charity is on track for future objectives, accountants will check that everything in the accounts of the organization appears to be in order.

  • Balancing a transaction’s two parties.

A double-entry accounting system’s credit and debit sides are balanced by accountants.

  • Calculating the impact of a single transaction on your accounts.

To assess your organization’s financial stability and the level of risk you may accept; nonprofit accountants can assist you in reviewing your statement of financial status.

  • Recognizing the reason for your accounting circumstances.

The accountant must not only comprehend it, but they must also effectively communicate it to other staff members. Your executive director will be explained your financial situation, after which the board of directors will be given the same explanation.

  • Creating thorough reports.

Accountants create detailed financial reports, such as your statement of cash flows, statement of operations, statement of financial position, and statement of functional expense, concerning the financial health of your company. Based on the data in these reports, they will then choose the best course of action to take.

  • Comparing actual spending and revenue to the budget.

The actual costs and income of your organization are compared to the annual budget with the assistance of nonprofit accountants. Comparing year-over-year changes in actual costs and income Making more precise projections for the future may be achieved by contrasting the present costs and revenues of your organization with those from prior years.

  • Getting your books ready for an audit.

Your non-profit’s accountant may suggest a firm carry out a financial audit for your business. Following that, they will ensure that all transactions are recorded, bank accounts are reconciled, reports are produced, and other audit preparation duties are finished.

  • Submit Form 990 for your nonprofit organization.

Every nonprofit organization must submit a Form 990 every year to provide the government with financial information and keep its 501(C)(3) status. Each year, your accountant completes this crucial paperwork, has the board approve it, and then promptly submits it.

  • Balance each bank account.

Accountants reconcile any inconsistencies between the two reports by comparing the cash amounts on your balance sheet to the bank account data.
Check that all bank accounts adhere to GAAP compliance requirements. Internal controls are maintained by nonprofit accountants to guarantee that financial security and GAAP compliance requirements are satisfied.

Nonprofit bookkeeping services you can trust

As you can see, accountants use the information gathered by nonprofit bookkeepers to do analysis and develop practical organizational actions.

Additionally, an accountant will accurately assess, group, and summarise your financial facts. They question themselves on issues such as:

  1. “Does this seem right?”
  2. Is there a more effective way to explain this?
  3. Should a different mechanism be used to allocate this?
  4. Have we matched the appropriate expense with the appropriate category?”Does this budget reflect our expectations accurately?”

Fund accounting is distinct, and nonprofit finances are frequently disclosed to the public more frequently than for-profit ones. As a result, managing your money carefully and making sure you’ve chosen wisely is much more crucial. Your accountant needs to be equipped to handle any situation and has the knowledge necessary to respond to inquiries regarding your financial situation.

How to Hire an Accountant or Bookkeeper for a Nonprofit;

Once you’ve decided to work with a nonprofit bookkeeper or accountant, you should first assess your organization’s requirements. Make a list of the services your nonprofit needs, and then determine if they fall under the purview of nonprofit accounting or bookkeeping.

Then, study the companies that are offered. To identify possible firms nearby, check for recommendations from reliable nonprofit sources, inquire about other nonprofits about the companies they utilise, and do your study. Compare the services to the list of requirements for your organization to reduce the list.

Be on the lookout for a firm that provides nonprofit bookkeeping and accounting services. While you might just require one or the other at the moment, you can never be sure how your demands will evolve. Making sure your vendor provides both services creates the possibility of eventually outsourcing your complete finance department.

Interview candidates, then choose the best organization!

Best Practices in Nonprofit Accounting:

Accounting best practices are critical for nonprofits because of the tight GAAP and IRS reporting standards that they must follow. Furthermore, implementing best practices helps to ensure both board members and contributors that the nonprofit’s objective is being carried out most transparently and responsibly possible.

Fund accounting, which separates revenues and expenses, a budget, a strategic plan, and the implementation of internal controls that provide checks, balances, and audit controls will enable access to data that will help conscientious charities prosper.

Nonprofit accounting professionals believe that recording financial facts in a software system created expressly for organizations helps expedite reporting and analysis for all parties involved.

Every Nonprofit Has Expenses:

It costs money for a nonprofit to achieve its goals, regardless of its mission. Overhead includes fundraising, general and administrative expenditures, and program costs, which are all disclosed on IRS Form 990. Keeping an eye on overhead costs is a prudent financial practice.

Indeed, many funders base their financing selections on how much money is spent on overhead. However, nonprofits face a catch-22 situation: if overhead costs are too strictly controlled, the nonprofit’s future growth may be hampered.

As a result, communicating the logic behind expenditures and describing how they are linked to the nonprofit’s goals is a crucial overhead practice, allowing board members and donors to glean the insights required to approve those expenditures.

A related technique is to stress “impact” as the primary indicator of how the organization is achieving its objectives so that stakeholders can look beyond the overhead ratio as a performance metric.

Check in with the budget regularly.

Nonprofits should compare actuals to budget forecasts regularly to assess how things are moving in terms of projected donations, other sources of financing, and expenses. Using historical data for the budget and then updating it with actuals gives the board a picture of where the organization is at any given time about the original estimates. If a scheduled grant does not come through or a creative fundraising campaign delivers more (or fewer) funds than expected, course correction could be managed more efficiently. Real-time data is extremely useful when donations do not arrive as expected.

Make a Long-Term Strategic Plan.

Though budgets are essential for short-term planning, a long-term strategic plan that spans three to five years can help position the organization’s actions to attain sustainability and growth. A nonprofit, for example, may outgrow its current location and need to relocate to a larger facility. Setting a capital plan that incorporates fundraising, personnel, and donor engagement can help develop action plans that will keep the organization’s day-to-day activities moving toward the bigger goal of a new home. It is critical to monitor the long-term strategy plan for potential societal and environmental elements. Nonprofit boards should review the strategy regularly and use it to assess the organization’s strengths, vulnerabilities, opportunities, and difficulties.

Put in place checks and balances. Internally

Implementing a system of checks and balances is critical for the financial accountability of a nonprofit. Internal controls not only help prevent and identify theft and fraud, but they also eliminate costly errors, enhancing financial accuracy. Simple procedures like locking the cash drawer, isolating duties (such as writing and depositing checks), securing computer passwords, and conducting asset inventories regularly can go a long way toward protecting the company.

Audit Finances Regularly

Auditing the charity’s financial health, ensuring that internal procedures are followed, and scrutinizing financial statements are all components of ensuring that the fiscal side of a nonprofit’s home is in order. When a business has outstanding record-keeping and sound financial processes, preparing for an audit is less stressful. NGOs can reduce the stress of an audit by employing accounting software created specifically for NGOs to speed up reporting and assist in report preparation. Nonprofits prefer not to deal with the “receipts in a shoebox” issue.

Audits can also aid in the provision of required documents for grants, state and federal donors, and compliance with the organization’s bylaws. Audits can also be used to convey information about the business to other donors. Providing comprehensive explanations of the nonprofit’s goal-achieving processes during an audit might enhance support from major contributors.

Use Nonprofit Accounting Software:

Accounting software designed for general use is not appropriate for the specific accounting needs of nonprofit organizations. Using purpose-built nonprofit accounting software can be a game changer for charitable organizations, both for day-to-day revenue and expense tracking and for the preparation of the financial statements required for compliance.

Nonprofit accounting software should automatically monitor and report on the costs connected with any restricted contribution, for instance.

Using an automated system to handle laborious accounting duties can help small and large businesses expand. Better workflows, fewer errors, more openness, and easy access to the financial statements essential to nonprofit compliance help the nonprofit business.

The Market’s Best Nonprofit Bookkeeper and Accounting Services

The nonprofit industry is the only one that Velan’s bookkeeping and accounting services are intended for. Their staff of certified public accountants and bookkeepers has assisted nonprofit organizations around the nation in regaining control over their finances and expanding their missions.

You’ll have a full team of qualified professionals working with you when you work with our nonprofit bookkeepers and accountants, answering queries and offering suggestions to help you succeed.

Velan aims to help you’re nonprofit serve your community better.

Although nonprofit bookkeepers and accountants are usually bundled together, it’s crucial to understand the crucial distinctions between the two. For your non-profit’s requirements, these variations will aid in making the best strategic decision.


Topics: Non Profit Organization




About the Author:

Pramod has over 11 years of experience relating to finance and accounts in diversified industries. He is an expert in resource and process optimization resulting in greater operational efficiencies.

Author can be reached at [email protected]

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