Fund Accounting: Basics and Principles for Nonprofits

nonprofit accounting basics

Most organizations exempt from income tax under section 501 are still required to file Form 990 , which discloses your nonprofit’s revenues, expenses and changes to net assets to the public. Looking up a nonprofit’s Form 990—using services like—can tell you a lot about its financial state. The Statement of Functional Expenses is included as part of the audited financial statements.

Rather, they’re passionate individuals who work hard to make their community and the world a better place. Start with a solid understanding of nonprofit financial accounting principles. This specialized type of accounting helps nonprofits keep track of their finances. Most importantly, they can make informed decisions about how to allocate resources and manage risk and report performance transparently. Grants from foundations restrict use funds for a particular program or purpose. Under these conditions, documentation will specify the restrictions of a grant award.

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With over 15 years years working exclusively with nonprofits, we pride ourselves in having a unique understanding of non profit accounting needs. We believe that nonprofits deserve personalized, quality service nonprofit accounting basics and should not settle for a one-size-fits-all approach. We collaborate with you to provide a fully virtual, customized, solution that is not only cost-effective but also strengthens your accounting function.

What is the basis used in accounting for non-profit organization?

Nonprofit accounting relies on using the statement of financial position (balance sheet), statement of activities (income statement), and cash flow statement.

The Statement of Activities gives you a sense for how well the nonprofit is operating. It is important for nonprofits to be aware of their legal obligations. Your message has been received and we’ll be reviewing your request shortly. In the meantime, schedule a meeting with us and we’ll be in touch soon. If you want a professional team that understands your business and what you need, reach out to us today for a free consultation. When shown on the Statement of Financial Position , it represents the wealth you’ve created over time, or what for-profit business calls EQUITY. That’s really all that accounting is, so don’t let the terminology intimidate you.

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Each fund is handled like multiple companies would be handled in a for-profit business, with its own budget and financial statements. Amateur sports leagues are also nonprofits, as are animal welfare organizations. They’re all different, but the one thing they have in common is their funding streams. The majority of these organizations, and thousands of others like them, receive their funds through public support or through grants.

  • Opening a separate account will prevent any accidental personal use of charity funds, and it will also make nonprofit bookkeeping and keeping track of donations and spending more manageable.
  • I’m guessing you were drawn to your current role because of the mission and impact, not the business model or financial challenges.
  • Internal controls don’t mean that you don’t trust your organization’s staff members.
  • Fund Accountants maintain the financial records of a nonprofit organization.
  • For the most part, however, cash flow statements for non and for-profits are very similar.
  • Great nonprofits check in on their budgets and pull reports every month and quarter to make sure their finances are in check.
  • The core principles of nonprofit accounting are the same as for-profit accounting.

In other words, it’s the wealth or value that you’ve accumulated over time. Accounting rules exist to help you record transactions accurately and consistently over time. You can get a bookkeeping service with non-profit experience to do all of the inputting and number-crunching for you.


It’s used to categorize your different revenue sources and expenses. Plus, you can use this document to review your change in net assets from the beginning of the year to the end of the year. You record depreciation in the statement of activities and statement of financial position . In your balance sheet, depreciation should be recorded just below the fixed assets line. In the income statement, depreciation is recorded either as a program expense or a supporting services expense. Nonprofits have many unique needs that differ from those of a for-profit organization.

  • When accounting for nonprofit organizations, this money coming in may come from grants, fees, contributions, or other sources.
  • However, it often requires the assistance of an accountant to configure it correctly.
  • Nonprofit organizations need effective and accurate accounting principles in order to make the best use of their limited resources and fulfill their mission.
  • Salaries, employment taxes, and benefits are often the largest expense for a nonprofit and must also be allocated to the Programs, Management and General, and Fundraising categories.

Fund accounting is a method that creates a clear picture of how money was spent. As we said before, nonprofit accounting is complicated, and many charities feel safer letting a nonprofit CPA handle their accounting.

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