Respond promptly and honestly when donors ask questions about how you used their money. Make your financial policies public and explain complex financial matters in simple terms. Beyond basic financial ratios, track indicators that show your resource efficiency and program sustainability. Monitor trends in donor retention rates, program cost per beneficiary, and operating reserve levels.

📆 Date: June 28-29, 2025🕛 Time: 8:30-11:30 AM EST📍 Venue: OnlineInstructor: Dheeraj Vaidya, CFA, FRM

Nonprofit organizations serve in a variety of sectors, such as religious, education, health, social services, commerce, amateur sports clubs, and the arts. Create systems that ensure continuity in your nonprofit accounting practices. One of the most nuanced challenges in nonprofit accounting is the art of cost allocation.

Assets

Non-profit accounting involves GAAP rules for fund accounting, which is not used in for-profit businesses. Additionally, non-profits need to comply with regulations specific to their non-profit status, such as maintaining donor restrictions and adhering to IRS guidelines. The operating budget is a financial plan that outlines the expected revenues and expenses for an organization during a specific period, typically a fiscal year. It includes all program costs, which are the direct expenses incurred in carrying out the organization’s mission, as well as general administrative expenses and fundraising costs. It is essential for nonprofits to maintain detailed records and documentation of all donations, as this information will be needed for financial reporting and tax compliance purposes.

Compliance and Reporting Burden

This statement is issued by a nonprofit instead of the income statement issued by a for-profit business. By maintaining these three focus areas, your nonprofit accounting system helps build donor trust while ensuring compliance with all requirements. This comprehensive approach to donor management through proper nonprofit accounting practices helps create sustainable funding relationships that support your organization’s long-term success.

The specific programs for social welfare fall under a separate category and do not form part of the firm’s surplus/deficit. In a profit-making organization, there is a shareholders’ equity section, given the presence of the stakeholders in the companies. Fyle also recommends using software that makes all data related to your expenses–including receipts, card payments, approvals, and budgets, readily available in a digital audit trail. You’ll want to be able to export any data you want to show your donors in an audit-ready fashion.

Key Principles of Nonprofit Accounting

• Or click on any of the individual reports for a detailed breakdown of that report.
• For instance, an income statement for a company would show revenue from the sale of goods, and its expenses would show the cost of goods sold.
• Nonprofit accounting is crucial for any organization that relies on donations and grants to fulfill its mission, not just those without revenue.
• Keep in mind that financial reporting should be accurate and consistent and reflect the true nature of the organization’s operations.
• So check with your tax/legal team to make sure you’re prepared for any potential tax bills.

Publishing audit The Key Benefits of Accounting Services for Nonprofit Organizations findings is also a great way to build trust and transparency with donors and stakeholders. Every time you run an audit proactively, you can test your internal systems, software, and team readiness to identify holes in the process. Some systems, like Fyle, also allows volunteers to submit and track their receipts from within their everyday apps like Gmail, Outlook, Microsoft Teams, or Slack. This ensures you can collect receipts on time, so there are no delays in closing your books. The organization may be charged $20 per day, up to a maximum of $12,000 or 5% of gross receipts, whichever is less. For larger organizations with gross receipts exceeding $1,208,500, the penalty increases to $120 per day, with a maximum penalty of $60,000.

• Nonprofits have a big responsibility when it comes to their accounting practices.
• We’ve mentioned accounting practices to keep a current pulse on your organization, but it’s always good to think long-term, too.
• Publishing audit findings is also a great way to build trust and transparency with donors and stakeholders.
• While bookkeepers maintain the accurate daily records that accountants need for analysis, accountants set up the systems and procedures for the bookkeepers to follow.
• Like any organization that handles cash flow and pays taxes, nonprofits should invest in a professional accounting and finance team.

If you aren’t already using one, donation management software is a great way for you to get strong insights into every step of your fundraising. You can also use your donation management software to help track restricted funds. You can spend the unrestricted money in your general operating fund on things like salaries, administrative expenses, https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ and supplies for operating your shelter. But the restricted donation has to go toward the designated fund, even if you don’t have an immediate need to buy dog food.