Nonprofit accounting is not only a means of transparency but also sets up trust and confidence with donors and other stakeholders. Unlike all other businesses, nonprofit accounting has aspects of accountability because those organizations do not exist to make money but to operate to serve a purpose. Managing finances will not only enable nonprofits to attract and retain finance but also, give the nonprofit the lever to uphold its tax-exempt status to the letter and spirit of the IRS 501(c)(3) qualification. Noticing how intricate tax-exempt laws are, it can be pretty easy for newcomers to begin considering nonprofit accounting. The book makes it more manageable for a reader to understand complex concepts, among which are preparation toward paying taxes and how the tracking of donations is of the essence, amongst other information that sounds so sophisticated.

What is Non-Profit Accounting?

Nonprofit accounting - the accounting system of a non-profit. Unlike for-profit accounting, the goal is to demonstrate the use of funds to accomplish the mission of an organization. There are several notable characteristics surrounding nonprofit accountingthese include the following

• Fund accounting tracing source and application of funds.
• Statement of activities - Similar in form to a profit-and-loss statement but reflects revenues, expenses, and changes in net assets.
• Position Statement - Like a balance sheet, it displays the assets, liabilities, and net equity of an entity at one point in time.

Fund accounting services allow the statements to be correct and pertinent to regulatory provisions.

Why is Fund Accounting Important?

• Transparency to donors: Since the nonprofit earns most of its income from donor funds, there ought to be a form of report on how the funds are being used.
• Compliance with the law: Being a tax-exempt body, nonprofits should adopt the set regulatory stipulations by the government in compliance.
• Internal budgeting: For this reason, it enables nonprofit managers to make resource allocation decisions.

Outsourcing Financial Reporting in Not-for-Profit Accounting

Outsourcing financial reporting services may relieve non-profit accounting of a heavy burden. The outsourcing of financial reporting services can be provided within a specified time period and to an acceptable level of detail. Included in this is the preparation of critical reports, which provide necessary information to gauge a nonprofit's work. Such examples include the Statement of Functional Expenses, which discloses costs by function—for example, program services, administration, and fundraising.

Benefits of Outsourcing Financial Reporting Services:

• Specialization: Access to experts who are experts in the standards of accounting of nonprofits.
• Accuracy: The chances of having mistakes in the financial statements and even issues in terms of compliance decreased.
• Saves Time: Nonprofit staff have enough time to go on with performing their missions.

What Reports Must Nonprofits Prepare?

• Statement of Financial Position: Assets, Liabilities, and Net Assets
• Statement of Activities: Income and Expenses of the accounting period
• Statement of Cash Flows: Reports cash inflows and outflows to have a clearer understanding of liquidity
• Statement of Functional Expenses: Divides expenses by functions to understand how the money is used

How Tax Preparation is Different for Nonprofits

Tax preparation for nonprofits is also a bit cumbersome compared to regular businesses. Nonprofits file an annual information return, which is basically in the form of Form 990, in order to maintain tax-exempt status. Proper tax preparation eliminates the possibility of penalties that accompany any breached IRS regulations.
Some of the common forms or documents required include:

• Form 990: The reason for this return is for the tax-exempt organizations, as it contains financial data and operating data concerning a nonprofit organization.
• UBIT: Special Unrelated Business Income Tax—Nonprofits have to pay taxes for incomes earned from unrelated business activities.

On hiring a tax professional for preparing tax returns, nonprofits are well covered that their forms will be correctly filled out and filed by the due date.

What to Put in Nonprofit Tax Preparation

• Donor contributions: All donations shall be reported accurately.
• Grants: The entire receipt of any grants and the terms under which those funds can be used shall be reported.
• Unrelated business income: Tax preparation will ensure that such money is reported without penalty should your nonprofit begin earning money from unrelated business activities.
• Expenses: The broken-down line item of every program, administration, and fundraising.

With outsourced accounting services, nonprofits are free to tend to their mission, while financial experts care for their books. Therefore, nonprofits will be undoubtedly sure about keeping on top of and compliant with all legal and financial requirements and surely get access to sound financial reporting services and tax preparation.

Benefits of Outsourcing Accounting

• Cost-effective: Saves the cost of hiring full-time accountants and, therefore, saves costs fully.
• Compliance: Fulfill the state and IRS-set rules.
• Scalability: Navigates organizational growth and meets the ever-present financial needs.

Why Should a Non-Profit Outsource Accounting?

• Save money because you wouldn't need to pay full-time accounting employees.
• Tap into the best accounting experts who are well-versed in the rules governing nonprofit accounts.
• Spend more time and resources on your mission.
• It reduces the likelihood of creating a financial mistake or getting audited.

Conclusion

Nonprofit accounting is relevant for showing transparency and compliance. Since most nonprofits seek to continue their mission, knowledge of fundamental principles in financial reporting services and tax preparation can help an organization extend its mission while being compliant. Outsourcing accounting can help a nonprofit reveal a better way of managing finances. Whether it's reporting or tax preparation, outsourced accounting lessens the burdens and frees up much-needed time for nonprofit activities. Is it a prospect for your nonprofit that professional oversight is needed for its accounts? Then call on FinoPartners, which specializes in helping nonprofits through its outsourced accounting services.