Non Profit Organization

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 recover 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 is one that 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. In order 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 a number of distinct programs, and the accounting for each of these programs is done independently in order 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 there are no investors 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 a number of 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 due to the fact that 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 carries out for a nonprofit?

Nonprofit bookkeepers are in charge of the organization’s daily operations. In order 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 a number of distinct programs, and the accounting for each of these programs is done independently in order 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.

In order to assess your organization’s financial stability and the level of risk you may accept; nonprofit accountants can assist you to review 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 given an explanation of 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.

• Submitting Form 990 for your nonprofit organization.

Every nonprofit organization must submit a Form 990 every year in order 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.

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 made the decision to work with a nonprofit bookkeeper or accountant, you should first assess your organization’s requirements. Make a list of the services your nonprofit need, 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 utilised, and do your own 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 over time. Making sure your vendor provides both services create the possibility of eventually outsourcing your complete finance department.

Interview candidates, then choose the best organization!

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.

Nonprofit Bookkeeping and Accounting Terms

Tables of Content: 

1. Accounts Receivable
2. Accrual-Basis Accounting
3. Amortization
4. Accounts Payable
5. Audit
6. Bank Reconciliation
7. Balance Sheet (Financial Health)
8. Chart of Accounts
9. Cash-Basis Accounting
10. Encoding
11. Current Liabilities
12. Donor Advised Fund
13. Depreciation
14. Deferred Revenue
15. Forecast
16. Functional Expense Report
17. Form 990
18. Fixed Assets
19. Grants
20. In-Kind Contribution
21. Income statement (Statement of Activities)
22. Indirect Costs
23. Journal Entry
24. Liquidity
25. Liability
26. Management Letter
27. Net Assets
28. Prepaid Expense
29. Pledge
30. Release from Restriction
31. Statement of Cashflows
32. Unrealized Gain or Loss
33. Working Capital Ratio

Accounts Receivable:

Accounts Receivable (AR) is the amount owed to an organization for goods or services provided or used by a customer without payment. Examples of this are donations and receivables from donations.

Accrual-Basis Accounting:

A method of accounting that recognizes revenues and expenses when incurred and when payments are received or made.

Amortization:

Paying off a debt in equal installments over a period of time. The term is used for two separate processes: loan write-off and asset write-off.

Accounts Payable:

Accounts Payable (AP) is the short-term liability an organization has to a supplier for products received before payment is made.

Audit:

Occurs when an external auditor or accounting firm examines a nonprofit’s financial statements, records, transactions, accounting practices, and internal controls.

Bank Reconciliation:

Bank reconciliation is the process of reconciling a company’s on-book bank account balances with the balances reported by financial institutions in their most recent bank statements. You should check the difference between the two numbers and correct them if necessary.

Balance Sheet (Financial Health):

A nonprofit balance sheet (also known as a balance sheet) is essentially a report that gives a snapshot of the financial health of an organization. Measure a nonprofit’s assets, liabilities, and net worth at a given point in time in one document.

Chart of Accounts:

The chart of accounts is the backbone of all accounting procedures. Accounting is based on the reports and statements an organization uses to track its finances. The COA lists these various accounts and ledgers to track all financial transactions and items.

Cash-Basis Accounting:

A system of accounting in which income and costs are recorded at the time that money is received or spent.

Encoding:

The process of organizing transactions by associating numbers with dates. Accounting codes are not universal, as each organization can create its own accounting coding system to suit its own organizational needs. Current Assets – Current assets are items on an organization’s balance sheet that are cash, cash equivalents, or anything that can be converted into cash within one year.
Examples include money, short-term investments, paid expenses, assets, and inventory.

Current Liabilities:

An organization’s debts or dues are expected to be paid to creditors within one year, such as accruals.

Donor Advised :

Fund or DAF is a donation account set up with a public charity. This allows donors to make charitable donations, receive instant tax credits, and then recommend grants from the foundation.

Depreciation:

An accounting policy is used to allocate the cost of a tangible or physical asset over its useful life. The amount of asset value used is specified by depreciation. This is usually performed on fixed assets. Direct Costs – a price that can be plainly bound to the production of specific goods or services.

Deferred Revenue:

Liability on an organization’s balance sheet represents advance payments from customers for goods or services that have not yet been delivered.

Forecast:

An approximation of an organization’s future financial health. It briefs on important financial decisions like funding of capital projects, employment or seeking funding as well. Organizations use important information from financial predictions on their balance statements and other disclosures.

Functional Expense Report:

A financial report is used by non-profit organizations to show the functional classification of costs in addition to the natural classification of costs. Functional expense classification further divides natural expenditures into three areas: programmatic, administrative and general, and funding.

Form 990:

The Form 990 series is a set of annual compliance forms filed with the IRS and some states. Tax-exempt organizations must file a 990 annually to maintain their status. The IRS, donors, and watchdogs use these forms to help organizations maintain credibility and integrity.

Fixed Assets:

Those assets are acquired for long-term use and are not likely to be converted quickly into cash, such as land, buildings, and equipment.

Grants:

A nonprofit grant, which is also known as a fundraising grant is a monetary donation given to an organization. Grants are usually given by foundations, corporations,or agencies by the government.

In-Kind Contribution:

An in-kind donation is a charity given to nonprofit organizations. These non-traditional donations involve the transfer of assets, usually goods or services, and can be donated by individuals, organizations, or businesses.

Income statement (Statement of Activities):

A report showing an organization’s revenue and expenses for a certain duration of time. It also classifies nonprofits’ revenue and expenses.

Indirect Costs:

Indirect costs are usually just overhead expenses like rent and utilities. It may also include general and administrative expenses.

Journal Entry:

A method used to record a business transaction or regulate balances.

Liquidity:

The extent to which a security can be bought or sold quickly in the market.

Liability:

Liabilities can be money or anything at all that a person or an organization owes. They are balanced over time by the transfer of economic benefits such as money, goods, or services.

Management Letter:

A formal letter prepared by the company’s external auditor that is signed by the company’s senior management. This letter certifies the accuracy of the financial statements submitted by the company to the auditor for analysis.

Net Assets:

All the assets of the organization without including current liabilities. It is otherwise called net worth.

Prepaid Expense:

Future expenditure that is paid in advance. After the asset’s benefits have been realized over time, the amount is recognized as an expense.

Pledge:

A donor commits to donating a specified amount to an organization over a specified period of time. Donors can make conditional commitments, that is, Payments will be made unconditionally or only if the conditions are met.

Release from Restriction:

The process of shifting funds from the “with donor restriction” classification to the “without donor restriction” category.

Statement of Cashflows:

A statement of cash flow is a budgeting report which shows how funds come and go in the organization routinely. These parts include the cash flows from operating activities, investing activities, and budgeting activities.

Unrealized Gain or Loss -Unrealized gains are boosts in the value of an asset or investment that the investor has not sold like an Open Stock Position. Unrealized losses are impairments of current investments.  Any investment gain or loss will be realized upon sale.

Working Capital Ratio – Often used by both commercial organizations and nonprofit bookkeeping & accounting organizations to estimate the momentary financial health of the organization. It can also be called as “current ratio”.