For example, bookkeeping ensures your nonprofit uses its revenue wisely and maintains its tax-exempt status. Accounting, on the other hand, is using that information to provide a detailed analysis of your finances. Think of bookkeeping as studying for a test—it’s the necessary first step you must take to prepare yourself for the big exam.

• In most cases, it’s better to let your accounting software or a bookkeeper take care of this step for you.
• For-profit accounting also focuses on revenue sources and production costs, such as materials and labor.
• Tax payments, financial reporting, and recordkeeping are handled differently by non-profit organizations than by for-profit enterprises.
• It is important to take care of overhead before seeking out donors for a nonprofit because it demonstrates financial responsibility and a commitment to efficiency.
• Since nonprofit organizations risk losing their tax-exempt status if they don’t comply with accounting principles, it’s vital to pay attention to proper bookkeeping.

Revenue should be recognized by the revenue recognition principles outlined in GAAP or FRS. Nonprofits should maintain complete and accurate financial records, including receipts, invoices, bank statements, and other supporting documents. These records should be organized systematically and easily accessible for audit and reporting purposes. Nonprofits typically use a double-entry bookkeeping system, where every transaction affects at least two accounts.

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Using the details you recorded about your nonprofit’s transactions, create a broad overview of your financial position and develop a plan to get your revenue where it’s supposed to be. To do this, you’ll need to set reasonable expectations for your income, expenses, and financial goals. Then, plan out how you’ll spend your income in a way that achieves those goals. For-profit cash flow statements will include items such as investment income, service fees, and sales. Nonprofit cash flow statements will list items such as fundraising proceeds, program fees, membership dues, and donor contributions.

You have to know the area to plan a route, and the same can be said about your nonprofit’s budget. Accurate and timely bookkeeping practices will make the job of those tasked with budgeting much easier to tackle. Nonprofit organizations are essential to our communities because their mission is to support social causes that benefit society. Like for-profit organizations, nonprofits need to establish an efficient bookkeeping system to bring the most value to our communities. Nonprofit bookkeeping involves the implementation of fund accounting where funds can be distributed into different groups since donors can set restrictions on what the money is used for. Finally, the tax status will more than likely differ between nonprofits and for-profits.

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Nonprofit Collaborative of Southern California
Janet Fohrman is the founder of the Nonprofit Collaborative of Southern California (NPCSC). It’s members consist of CPA, Marketing, Attorney, Insurance and other industry professionals that service nonprofit organizations. Bookkeeping Services in Lincoln Wajiha is a Brampton-based CPA, CGA, and Controller with 17+ years of experience in the financial services industry. She holds a Bachelor of Science Degree in Applied Accounting from Oxford Brookes University and is a Chartered Certified Accountant.

And when you track your budget, you’ll be able to find more ways to save and spread that money elsewhere. For example, you can use those funds to build a responsive fundraising framework that better connects donors to relevant charities. A skilled bookkeeper will be able to advise you on the finest accounting software for your organization.