The Internal Revenue Service (IRS) is responsible for overseeing these organizations and ensuring they comply with applicable tax laws. Nonprofits must follow Generally Accepted Accounting Principles (GAAP), established by the Financial Accounting Standards Board (FASB), to prepare accurate and consistent financial statements. This allows donors, board members, and other stakeholders to assess the organization’s performance and financial stability. In summary, revenue management and fundraising are key aspects of nonprofit accounting.

Additional Nonprofit Accounting Resources

• Additionally, developing a system for revenue recognition streamlines financial management.
• By the 1980s, the US government was actively encouraging the growth of nonprofits as government support shifted from education and income assistance to healthcare, housing and pension programs.
• Be sure to pay attention to the net assets available to your organization under the “without restrictions” column of your statement of activities when analyzing the document for sustainability.
• Often called fixed assets, P&E depreciates over time (except for land, which does not depreciate).
• A set of standards for all U.S. states to follow for certain types of commercial transactions.

The book value of the physical, long-term, tangible assets that an organization owns (e.g., property, building, equipment, leasehold and other improvements) which cannot easily be converted to cash. Statement showing the projected annual revenue and expenses of an organization (or project). Items that relate to the organization’s main business or program activities. They may also be referred to as “above the line” activities (meaning they are included in the calculation of the operating surplus or deficit – the “bottom line”).

Revenues, gains, other support, and releases from donor restrictions

Comprised of administrative and fundraising expenses that are important and necessary for all nonprofits to deliver effectively on their programs/mission. An endowment refers to the donations, property, and assets a nonprofit organization receives for generating investment income. Most endowments are The Key Benefits of Accounting Services for Nonprofit Organizations designed to keep the principal amount intact while using the investment income for charitable efforts. It can be generated through surpluses, special fundraising, and/or borrowing.

Contributed Revenue

Beyond the annual Form 990, organizations often juggle multiple grant reports, each with its own deadline https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ and format requirements. Unlike for-profit organizations, where there is a unified tracking system, nonprofit organizations are restricted to separate tracking of financial transactions. As your nonprofit grows, you’ll likely need bookkeeping and accounting expertise. Small nonprofits may begin with basic bookkeeping support, but there are times when professional nonprofit accounting oversight becomes necessary. Summary of the revenue and expenses of an organization showing the profitability of an organization during an accounting period. Funds received for services, donations from individuals, grants from foundations and corporations, support and contract payments from government agencies, income from fundraising activities, and investments.

Pledge – Donors’ promises to give a certain amount of money to an organization over a set amount of time. Donors can make pledges that are conditional, meaning payment will only be made once a condition is met, or unconditional with no strings attached. This glossary provides definitions of terminology commonly used in nonprofit finance.

• It serves as a simple measure of the short-term financial stability of an organization.
• It includes a statement of position (balance sheet), a statement of activities (income statement), a statement of cash flows, and may or may not have notes.
• If you can’t find someone for the job, you may need to explore alternative options.
• NPOs are not in business to make a profit; they are funded through donations or government awards, and they are in existence to provide services for the common good.
• The future role of NPOs in providing social services, the need for internal audits and professional management and oversight is discussed.
• Instead of blindly cutting overhead costs to reach a certain percentage, be strategic about limiting your overhead, and ensure you’re allocating enough funds to this area to keep your nonprofit running smoothly.
• The number of accounts in a nonprofit’s general ledger could range from 30 to 1,000 or more.

As used at the Center on Philanthropy, the term refers to a voluntary action for the public good, including voluntary service, voluntary association, and voluntary giving. However, the term is usually used to describe a wealthy individual known for their exceptional generosity in support of charitable causes. An outright gift is the simple transfer of gift property to the donee without any conditions or terms of the trust.

This is a publicly available document that promotes financial transparency and verifies that your nonprofit operates as a 501(c)(3) should. Within these guidelines, there are several statements and reports your nonprofit will have to create and use to demonstrate your organization’s financial health. Properly managing your organization’s finances and allocating your resources is crucial to keeping your nonprofit afloat and ensuring you can continue to carry out your cause. Just because your nonprofit qualifies as tax-exempt under Section 501 doesn’t mean that all of your donors’ contributions qualify as charitable deductions. And it doesn’t mean that all of the activities your nonprofit spends money on aren’t taxable.