Nonprofit bookkeeping doesn't have to be a headache. With the right approach and the best tool for the job, your organization can keep better books to help with transparency, annual reporting, and tracking your fiscal health. In this article, we'll show you eight steps for effective bookkeeping, along with some of the best tools in the market that can help.
Nonprofit bookkeeping can seem complicated, but there are several resources to help experienced and novice bookkeepers. Although it is ever-changing as it grows, standard accounting principles remain the same.
When choosing a bookkeeper, updating financial information, and developing reports, you’ll want to keep in mind your organization’s mission and goals.
In this article, we’ll discuss key bookkeeping responsibilities and steps to efficient bookkeeping and provide 3 software options that can help.
Nonprofit bookkeeping refers to the recording, tracking, and analyzing of an organization’s revenue and expenses. Nonprofits must be transparent in their bookkeeping to remain tax-exempt. The best way to do this is by following accounting principles and staying aligned with the organization’s mission.
The American Institute of Certified Public Accountants (AICPA) and the Financial Accounting Standards Board (FASB) have created standard accounting principles (GAAP) for nonprofits to follow. As you collect funds, pay expenses, and prepare reports, keeping these principles in mind is vital.
One of GAAP’s (Generally Accepted Accounting Principles) principles is the Principle of Consistency, which discusses the importance of creating and keeping the same report every year.
The easiest way to do this is with quality accounting software that helps create standardized reports. Regardless of your nonprofit size, there are several accounting software options available.
Churches can choose from many affordable online options, including QuickBooks, Aplos, AccuFund, and more. If you’re using Donorbox for church fundraising, managing your finances would be a breeze with Donorbox’s powerful integration with QuickBooks.
Donorbox + QuickBooks - Learn More!
Many nonprofits start as smaller organizations with one or two people. It can be tempting to combine nonprofit funds with your personal accounts during this time since you aren’t bringing in a lot.
You must keep these funds separate from your personal account to remain transparent and provide required reports to your board and the IRS.
When you start a nonprofit bank account, you’ll want to authorize someone as a signatory. This person can be your organization’s board president, treasurer, or bookkeeper.
If your nonprofit can afford to hire a bookkeeper, you should find someone with fund experience. Bookkeepers with this background will help create internal reports that don’t need much updating by your accountant and can save your nonprofit money and time.
Many new nonprofits must rely on volunteers to record financial reports, so when electing a treasurer, you can look for someone with a similar background.
As your nonprofit grows, you must protect yourself and the organization from fraud. This is especially true as you find board members and hire more staff.
You can take several steps to establish bookkeeping controls and keep your financial information safe. A few of those steps include:
Some donations and grants will come into your organization restricted for specific purposes. These funds must remain separate in your account and reports. Nonprofit fund accounting differs from for-profit accounting because it ensures accountability to the donors’ wants and tracks how these funds are allocated.
All funds that come to your organization are restricted, unrestricted, or temporarily restricted. Bookkeepers must record these funds in a chart of accounts to better keep track.
A bookkeeper with experience in fund accounting will create detailed fund accounting reports to help your accountant file quarterly statements and perform audits.
Fund accounts make creating budgets easier by providing more details on where the money comes from and where it goes. As restricted funds enter your accounts, you may notice specific programs receive more donations.
You can determine whether these are one-time or regular experiences and choose how to raise funds for different programs that don’t gain as much financial support. A budget and strategic plan will help plan for better use of these funds and others.
A primary act of bookkeeping is entering all revenue and expenses.
As a nonprofit bookkeeper, you’re responsible for entering cash and in-kind donations, grants, membership payments, etc. You must also track all invoices and payments paid by your organization.
At the end of the month, you must reconcile revenue and expense reports with your bank account and keep your accounts and reports up to date.
Accountants must use your bookkeeping reports to analyze and present your organization’s financial status to the board, IRS, and other external characters. These reports will help create the four statements required by the IRS that show what your organization owns and owes, review changes to your net assets, show how cash moves in and out of your nonprofit, and how you spend funds.
As a bookkeeper, it may be necessary to meet with your nonprofit’s accountant weekly, monthly, quarterly, and yearly. Weekly meetings with an accountant should go over how to adhere to your budget goals and track fund accounting.
As you become more comfortable with managing your accounts, you’ll move to meet with an accountant to compare your budget against the results you want and revise your budget to meet your organization’s needs better.
All nonprofit bookkeepers must meet with an accountant to help report quarterly taxes, submit Form 941, create financial statements, and complete government-related reports for grants and business contracts.
Once a year, you’ll send the required documents to an accountant to submit Form 990 to the IRS and provide tax documentation to staff. You will also need an accountant to audit your financial statements and help work with you on future financial plans.
A nonprofit bookkeeper is not the same as an accountant. While an accountant will interpret financial reports and make informed suggestions for the board, a bookkeeper is responsible for organizing the nonprofit’s data to create these reports.
Nonprofit bookkeepers compile financial data across the organization and have many responsibilities, including:
According to the IRS, nonprofits must regularly file four financial statements to retain tax-exempt status. These reports include:
Each statement relies on quality information regarding the organization’s income from cash donations, grants, in-kind gifts, and expenses. Bookkeepers must ensure the financial reports providing this information are correct and updated.
Outside of IRS requirements, payroll can be the most important role for a nonprofit bookkeeper. After all, without payroll, you won’t have staff for long.
When managing payroll for a nonprofit, bookkeepers must administer federal and state taxes, deduct money for employee benefits, and determine how funds are affected.
Nonprofit bookkeepers must create accurate invoices for vendor payments, retail sales if they have a store, membership subscriptions, tuition fees, and more. Invoices help nonprofits track funds and give donors proof of their gifts.
Invoices are legal documents and should have your organization’s logo, name, address, email, phone number, invoice number, and date. They should also include the donors’ information and a list of goods and services.
Your nonprofit’s bookkeeper must prepare regular reports for the organization’s Board of Directors that provide updated financial information. Accounting software can make this process easier and help your bookkeeper follow GAAP standard accounting principles. Nonprofits of all sizes use the following software to create and keep these reports up to date.
QuickBooks is the most well-known accounting software for nonprofits and for-profit organizations. It has a nonprofit software that allows organizations to invoice, track donations, develop reports, and more.
Their paid plans start at $42/month after a 50% discount is applied for 3 months.
As your nonprofit grows, you can sign up for QuickBooks Enterprise to store donors, vendors, and other financial information. Nonprofits can easily link QuickBooks with their Donorbox database in 2 different and simple ways –
Aplos was developed for nonprofits and focuses on fund accounting. It is a growing company that claims to be used by over 40,000 nonprofits.
Nonprofits using Aplos can:
Aplos also includes an email and letter builder.
Nonprofits can sign up for a 15-day free trial. Paid packages start at $39.50 a month and provide the following:
AccuFund is an excellent resource for nonprofits looking for a reliable financial management tool. As your nonprofit grows and steps out into more complicated financial projects, AccuFund lets you purchase tools that fit your organization’s needs.
Their core system includes:
Nonprofits can also purchase:
AccuFund doesn’t list its pricing on the website. You will need to contact sales to know about it.
Nonprofit bookkeeping is one of the most crucial needs in an organization to maintain good financial health and transparency with supporters. Bookkeepers can be paid staff members or volunteers, but they should understand GAAP principles and fund accounting.
As you choose your organization’s bookkeeper and financial software, remember to consider your organization’s needs and abilities. Software that provides top-level financial tools isn’t helpful if your staff and board don’t understand how best to use it.
If you’re looking for a one-stop-shop online fundraising tool that seamlessly integrates with your CRM, marketing tool, or accounting software, take a look at Donorbox. Over 80,000 nonprofits worldwide have used our tool to boost donations with features like peer-to-peer fundraising, text-to-give, event ticketing, recurring donations, and more. Visit our website to learn more about these powerful features.
Want more tips on nonprofit management and finances? Go to our Nonprofit Blog. You’ll also get hundreds of fundraising ideas, best practices, free templates, and more over there. Subscribe to our newsletter and receive a collection of our best resources in your inbox every month.
Disclaimer: By sharing this information we do not intend to provide legal, tax, or accounting advice, or to address specific situations. The above article intends to provide generalized financial and legal information designed to educate a broad segment of the public. Please consult with your legal or tax advisor to supplement and verify what you learn here.
Kristine Ensor is a freelance writer with over a decade of experience working with local and international nonprofits. As a nonprofit professional she has specialized in fundraising, marketing, event planning, volunteer management, and board development.
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Kristine Ensor