Bookkeeping for Non-Profits: Special Considerations and Tips

1. Implement Fund Accounting

Non-profits receive funds from various sources, such as grants, donations, and membership fees. These funds may have donor restrictions, requiring them to be used for specific programs or activities. Fund accounting helps track these categories separately, ensuring compliance.

• Restricted Funds: Funds designated for a specific purpose, such as scholarships or community projects.
• Unrestricted Funds: Funds that can be used for general operational expenses.
• Temporarily Restricted Funds: Funds restricted for a certain period or until a specific condition is met.

2. Use Non-Profit Accounting Software

Investing in accounting software tailored for non-profits simplifies financial tracking. Some of the best options include:

• QuickBooks Non-Profit: Provides fund tracking, donation management, and customized reporting.
• Aplos: Designed for non-profits with fund accounting, donor management, and compliance tools.
• Xero: Offers customizable reports and integrates well with non-profit fundraising platforms.

3. Maintain Accurate Donation Records

Non-profits rely on donations, making accurate record-keeping essential. Best practices include:

• Issuing donation receipts with details on tax-deductibility.
• Tracking in-kind donations (non-cash contributions such as equipment or services).
• Recording donor restrictions to prevent misallocation.

4. Track Grants and Government Funding Properly

Grants often come with detailed reporting requirements, including expense breakdowns and progress reports. Keep these records organized to meet compliance requirements and improve future grant applications.

5. Reconcile Accounts Regularly

Monthly reconciliations help detect errors, fraud, and discrepancies early. Ensure that all bank accounts, grants, and donations match recorded transactions in your accounting system.

6. Prepare Accurate Financial Statements

Key financial statements for non-profits include:

• Statement of Financial Position (Balance Sheet): Shows assets, liabilities, and net assets.
• Statement of Activities (Income Statement): Details revenue and expenses over a specific period.
• Statement of Cash Flows: Tracks the movement of cash within the organization.

7. Ensure Compliance with IRS Regulations

Non-profits must comply with IRS regulations, including:

• Filing Form 990 annually to maintain tax-exempt status.
• Keeping detailed records of donations for tax deductions.
• Adhering to state-specific regulations for fundraising and financial reporting.

8. Develop a Strong Internal Control System

Internal controls reduce the risk of fraud and financial mismanagement. Consider the following:

• Segregation of Duties: Separate financial tasks among multiple people (e.g., one person records transactions, another approves payments).
• Board Oversight: Have board members review financial statements and approve budgets.
• Regular Audits: Conduct internal or external audits to ensure accuracy and compliance.

Best Practices for Non-Profit Bookkeeping

1. Use a Dedicated Bank Account: Never mix personal and organizational finances.
2. Budget and Forecast: Create annual budgets and track variances.
3. Automate Where Possible: Use software to streamline data entry and reporting.
4. Train Staff and Volunteers: Ensure those handling finances understand non-profit accounting principles.
5. Seek Professional Assistance: Work with a bookkeeper or accountant specializing in non-profits.

Conclusion

Proper bookkeeping is essential for a non-profit’s financial health and credibility. By implementing fund accounting, maintaining accurate records, and ensuring compliance, non-profits can manage their finances effectively and focus on their mission.

If you need expert bookkeeping services tailored for non-profits, TA Bookkeeping is here to help! Fill out the form below to get started.