Nonprofit Accounting: A Guide to Basics and Best Practices

nonprofit accounting

It’s best to save these records digitally in your accounting software, but holding on to paper records for the short term is helpful to verify everything is correct. Proper record keeping is vital to sound accounting and complying with IRS and not-for-profit regulations. Every nonprofit should have someone responsible for the finances of its organization. This might be a single person like the chief financial officer, or it could be an entire team depending on the size and complexity of your organization.

A billing scheme is a fraudulent disbursement technique whereby a person submits bills for bogus goods or services, inflated invoices, or invoices for personal purchases to trick their employer into paying them. Since nonprofits do not have owners, there is no owner’s equity or stockholders’ equity and therefore no distributions to owners. Bookkeepers don’t generally require specialized education for their positions, though it doesn’t hurt if a candidate has them. In accordance with these standards, there are several types of documentation that your organization should be aware of. We’ll walk through the various types of documents that your finance department will likely be working with most frequently.


It is also unable to interpret data or pinpoint key metrics to share with stakeholders so they can better understand your organization’s overall financial picture. Document incoming funding (donations and fundraised money) throughout the year. Also track outgoing funds Professional Bookkeeping Online Bookkeeping Services such as salaries, wages and other business expenses, and break them down by month. Finally, write an explanation addressing how surplus (profits) will be reinvested into the nonprofit. QuickBooks offers a discount on its QuickBooks Online software through TechSoup.

In the for-profit world, auditing means the IRS is reviewing all of the organization’s paperwork and financial records to be sure it’s paying taxes according to its legal obligations. Nonprofits and for-profits differ significantly in many ways, from the part they play in the community to the way they approach their finances. Understanding how accounting for nonprofits differs from for-profits gives you better insight into how organizations like yours prioritize finances.

Other Resources to Explore

Nonprofits use different accounting terms than their for-profit counterparts. For example, in private industry, a balance sheet refers to the owners’ and shareholders’ net equity. As nonprofits do not have owners or shareholders, nonprofits use a statement of financial position to report assets and debts. A nonprofit can have multiple funds—for example, a building fund, equipment fund, and general fund. Nonprofits use a type of system known as fund accounting to ensure accountability of the use of money. They must show that grant money fulfills its intended purpose as specified by the donor.

Leave a comment

Your email address will not be published. Required fields are marked *