Bookkeeping for Nonprofit: Stay Compliant, Grow Your Organization

Proper bookkeeping for nonprofit organizations is beneficial for many reasons and will set you on the path to achieving your goals. Accurate records give you peace of mind and enable you to make informed financial decisions, even in tumultuous times. 

For nonprofits, your cash flows will not always be consistent from month to month. With that in mind, good bookkeeping can aid you in creating a budget that will let you feel secure in your spending every step of the way. 

Furthermore, it is crucial to stay on top of your books to remain compliant with current tax laws and IRS guidelines. In this article, we will take a look at the basics of bookkeeping, how to create a budget that works for you, and how you can keep up with ever-changing tax laws and IRS requirements.

Bookkeeping for Nonprofits: The Basics

Keep Accurate Records

Keeping accurate records is a must for any organization, but is especially important for nonprofits. 

You’ll need to keep records of all financial transactions such as donations, expenses, and investments. We suggest using a bookkeeping system.

Use a Bookkeeping System

Bookkeeping has become easier than ever with multiple bookkeeping software solutions available online. You will see most of these programs require a monthly subscription cost, but the benefits you gain from using one can be a game changer for your organization. 

You may have heard of some such as Xero and QuickBooks. These are great options but you can find a more extensive list and write-up of the pros and cons for each of the similar programs here. 

Overall, bookkeeping software can provide:

• Fund accounting
• Donation tracking
• Online gift forms
• Financial and giving reports
• Invoices
• Tax calculations
• And much more

Take your time comparing software to find the one that will work best for your needs and also fits into your budget. 

Rely on Financial Reports

Financial reports provide valuable information that tells the story of your organization. 

Four nonprofits, there are four financial reports: 

• The Balance Sheet
• The Statement of Cash Flows
• The Income Statement
• The Statement of Functional Expenses 

For your bookkeeping purposes, make sure you understand what information each of these reports offers you and what insights they give you into your organization. 

Check out this article that goes into detail about each of the four financial statements and how you can use their information to improve your financial position.

Create a Budget

Using your financial reports and other relevant information you have available, begin to put together a budget. A budget gives you a spending plan based on the resources you have readily available, made evident by your real-world financial data. 

Sticking closely to your budget promotes growth and ensures your money is being spent intelligently and where it counts the most. A nonprofit that is able to optimize its budget puts itself in a great position to achieve its mission and be financially healthy well into the future.

Understanding Tax Laws

While most nonprofits are tax-exempt, there are still rules to be aware of that will need to be followed to meet IRS guidelines. Tax laws frequently change, so staying up-to-date will help you stay in the loop. 

Let’s take a look at some of those requirements and see what steps you can take in order to remain compliant.

IRS Requirements for Nonprofits

The IRS requires all nonprofits to file a 990 annually; that form can be found here. You will want to have detailed records of income, expenses, and assets. 

Additionally, document all donations properly. There are different methods to record donations based on when, what, and how they will be used. A post on indirect cost allocation can be read here if you would like more information.

Keeping Track of Revenue

For nonprofits, it is common to see revenue in the following six forms:

• Donor contributions
• Fundraising proceeds
• Fees for services
• In-kind donations
• Membership fees
• Rent subleases

For tax reporting purposes, the IRS expects detailed records on all donations and other income sources; this includes the amount donated, the donor’s name and contact information, and other relevant information. 

Filing On Time

As tax time draws near, be sure to have the information and forms discussed in this article ready to go. 

Being on time with your taxes will prevent you from incurring penalties, so it is always best to be punctual. 

Stay Compliant and Grow Your Organization with the Help of an Experienced Accountant 

For many nonprofit directors, there are better uses of your time than focusing on accounting. However, being on top of this is critical for your organization’s financial health. 

If your organization needs assistance with bookkeeping, parsing through financial reports, creating a budget tailored to your organization, and staying compliant with all relevant tax laws, consider working with an experienced accountant. 

With over twenty years of experience working closely with nonprofits, Morris Verdonk Accounting can help you with all of your accounting needs. 
Contact us today to schedule a one-on-one consultation to discuss how we can help your organization. We look forward to working with you!