Consider you have a nonprofit organization. It is trying to make the world a better place. However, nonprofits receive generous tax breaks. So, it must be responsible to its donors. So, guaranteeing you a proper account is necessary. After all, reporting your incoming and outgoing money is also essential.
Nonprofit bookkeeping provides financial transparency that makes donors feel comfortable. It assures that the organization is spending cash wisely for its aims. After all, sloppy or inaccurate bookkeeping can lead to many issues. It includes losing nonprofit status, hefty fines, criminal charges, etc. This article will help nonprofits improve their bookkeeping skills. It also explores the unique needs and solutions in bookkeeping.
What is Nonprofit Bookkeeping?
Nonprofit bookkeeping is a financial management system. It records and reports financial things for nonprofit organizations. Nonprofits are organizations involved:
- Have no ownership interests
- Receive contributions from third parties that don't expect a return
- Have a plan other than creating a profit
Nonprofit bookkeeping employs specific language and designations to note funded activities. It creates records to show donors how their cash is being used. Some examples are as follows:
1. Programs
The aids that a non-profit organization gives are called programs. Each program generally has its revenue, records, expenses, etc.
2. Donor limitations
Some donors limit their contributions to specific purposes. Nonprofits must account for these limitations in their economic management. Funds not donor-restricted can be used for any program. It can also be used for administrative expenses or other purposes.
3. Fundraising
Fundraising means activities that raise an organization's activities. These areas involve direct mail campaigns, email newsletters, etc.
4. Administration
Funds for directing a nonprofit are called administration or overhead funds. These funds must keep the nonprofit process. They must be noted in all bookkeeping. It also reported to donors. Donors prefer that nonprofits keep their overhead costs. It includes salaries, as low as possible, to direct most funds toward programs.
Do Nonprofits Require Bookkeepers or Not?
Every organization handles cash flow and pays taxes. Likewise, nonprofits should invest in a professional bookkeeping group.
Nonprofits run the risk of fraudulent activity. It will happen if they don't manage bookkeeping properly. Problems are often unintentional. It arises from a lack of oversight or experience. Volunteers comprise an essential part of the staff of nonprofit organizations. This may leave an organization with short notice, which can cause recordkeeping gaps.
Bookkeeping Documents Needed in Non-Profits
Nonprofit bookkeeping needs to maintain detailed records. It helps to ensure financial transparency. Here are the necessary documents that nonprofits maintain:
1. Balance sheet
This document gives a snapshot of a nonprofit's financial position. It outlines certain things. It includes assets, liabilities, net assets, etc.
2. Income statement
This statement summarizes a nonprofit's revenue and expenses. It shows the income of organizations from donations, grants, etc. It also expresses how those funds were used to cover expenses.
3. Cash flow statement
It is the cash movement in and out of a nonprofit organization. It differentiates cash flow from certain activities. It involves operating, investing, financing, etc.
Read Also:- Benefits of Outsourced Bookkeeping Services for Startups
4. IRS form 990
This annual tax form is essential for managing a nonprofit's tax-exempt status. It records an organization's economic activities, mission fulfillment, etc.
5. State & local tax returns
A nonprofit organization needs to file extra tax returns with state or local authorities. It depends on your location.
Extra Supporting Documentation Nonprofits Must Monitor and Maintain
There are some other extra supporting documents in non-profits. They shall be monitored and maintained. These involve:
- Expense receipts
- Bank statements
- Board meeting minutes
- Grant agreements
- Payroll records
- Donor records
Closing Remarks
Non-profit groups use nonprofit bookkeeping as a system of management. It also acts as recordkeeping. They report financial information through this system. It helps to ensure financial transparency. It also makes donors feel comfortable. After all, it assures that their money is being wisely spent. That may be to further the organization's goals. Nonprofit organizations use specialized software to manage their finances. They also use the software to keep track of donations. After all, it generates reports to comply with nonprofit rules.
You'll spend less time worrying about bookkeeping/accounting. Thus, you can spend more time focusing on delivering excellent customer service. Fino Partners can help alleviate your bookkeeping burden.
