Non-profit accounting refers to the unique process of accounting that non-profit organizations must go through. Non-profit organizations, like churches, are different from standard for-profit organizations, because they primarily use their revenue to support a cause or community. As a result, there different financial guidelines and tax requirements for these organizations to follow. If you run a non-profit group, take some time to read about the important aspects of non-profit filing.
Most non-profit organizations work with a professional accountant that can handle their finances. Non-profit organizations do not always have a lot of experience tracking finances, so many of them partner with trusted accountants to help with filing and bookkeeping. If you are working with an accountant, it is important to stay in contact with him or her so you can keep each other up-to-date on crucial information.
If you are having trouble making specific financial decisions, your accountant can help steer you in the right direction. Do not be afraid to ask your accountant for guidance, because making financial decisions without the proper information can be very dangerous for your organization.
Every organization gets financial statements, but the ones given to non-profit organizations are a little different. Instead of a balance sheet, non-profit organizations will get a statement of financial position, which shows an organization’s assets and liabilities. The statement also details information about contribution revenues, and how they are affected by donor restrictions.
You will also receive a statement of activities, which shows specific amounts of revenue in relation your group’s total amount of net assets. These statements are considerably different from the ones that for-profit organizations receive, so it is important to review them to see where your group is standing financially.
Another important aspect of non-profit filing is expense allocation. Also known as cost allocation, this process has you report on your organization’s expenses. Not only does this help organizations comply with certain tax guidelines, but it also helps them keep track of where money is going. This is considered one of the more challenging aspects of non-profit accounting, so here are few things you should know about this process.
Typically, the expenses for a non-profit organization need to be split into three categories, program service expenses, management and general expenses, and fundraising expenses. Most of your expenses should be used on program services, since you will be using most of your group’s money to support a specific cause. It is a good idea to put your allocation plan in writing, so your fellow members and accountant can easily discuss it.
One other important part of accounting for non-profit organizations is keeping track of all the donations you receive. Monitoring your donations in necessary because depending on where they come from you may need to deal with certain filing requirements. You need to be able to disclose where donations come from so you can show that they were sent to the proper place.
Many non-profit organizations use online accounting systems, because it makes the process much easier and keeps important financial information safe. By keeping track of your donations you will have a better idea of how much money your organization has received during a specific period of time.
If you are confused about non-profit donor acknowledgement letters, we’ve created a brief overview for you to follow.
Looking for an accountant to partner with? David Gallagher CPA can help you with your non-profit filing needs.