Nonprofit Accounting for Beginners: How Do Financial Statements Work?

Embarking on any new journey can be challenging. Although you may have experience in one aspect of the field, just a side step into another can be a whole new ball game. If you are in a nonprofit business, then you know that there are plenty of different views and activities to keep things afloat. From marketing to payments, there is no small job in this business. When it comes to accounting for nonprofits, the company has to be on the mark to provide all the details. Nonprofits thrive on the generosity of others and to give any pause to this generosity will seriously diminish the work you are attempting to do.

Public Forum for Financial Statements

Nonprofits that make a certain amount of money and acquire a certain amount of assets are legally bound to submit their financial information. They must fill out an IRS form 990 and this information is made public. As a nonprofit account, one must make sure to submit all detailed information correctly in this form, such as salaries for all parties working for the nonprofit including directors, officers and key employees. This is an important key for nonprofits because donors will want to verify their involvement and make sure that funds are dispersed properly. If you fail to do so, no one will want to donate to your program. In contrast, seeing your public records and the correct, up-to-date information will give your nonprofit the validity needed to keep the donations coming in.

Fund Accounting

First and foremost, track all finances and keep it separate. When doing nonprofit accounting, it is imperative to divide the revenue that is brought in, distinguishing funds by what they are used for. These measures can help you avoid confusion–and chaos in your bookkeeping!

There are very specific rules surrounding the use of donations and a mixup is the last thing your nonprofit needs. Set up separate accounts for different types of funds, and keep accurate records of what goes where; a bookkeeping system can be very beneficial here. Following the rules set for nonprofits is key because the smallest oversight can have big consequences. For instance, if you report finances incorrectly to your funders, you can lose veritability–and even your nonprofit status.

Budget

Budgeting is important in any business, nonprofits included. Usually performed on an annual scale, nonprofit budgets can provide a roadmap of intentions and how any income will be used. By separating income and expenses, there will be a clearer picture of what exactly your budget is after paying employees, holding events, and other expenses. Determine what your nonprofit wants to achieve in the coming year and estimate what it will look like with the projects that are in the works. By doing so, it is more likely that you will stay on track and align with the goals projected rather than going in with no set plan. Look for accounting software or outsource budgeting to create your budgets and track your income if needed. There is help out there! Time to make your nonprofit shine.

Get that Nonprofit Accounting Going!

For further nonprofit accounting information or help in any small business ventures, visit us at Professional Accounting for You to browse from our specialists. Getting started on your own business is an amazing feat but when you need a little support, we are here to help. From our professionals to yours, anything is possible.