August 2014
Non-Profit Notes
-insight for non-profit organizations
Bookkeeping for Nonprofits
Unlike businesses, nonprofits rely on funds from
contributions, membership dues, program revenues,
fundraising, events, grants, and investment income as the
primary sources of income to sustain operations. Therefore,
some of the accounting and reporting associated with those
revenues and their corresponding expenses is uniquely
different than the for-profit world.
When a donor makes a contribution to a nonprofit
organization they may have interest in whether that
contribution will qualify as a charitable deduction for tax
purposes. Contributions to organizations such as churches,
schools, and Red Cross chapters can qualify as tax
deductible. However, contributions to social organizations,
chambers of commerce, college fraternities and sororities, or
amateur sports clubs often are not tax deductible.
Knowing the difference and providing your donors with
proper, timely documentation for their taxes is an important
responsibility of nonprofits. Nonprofits must also clearly state
if they have received IRS tax exempt status and if they have
field their 990 tax return. Also, nonprofits may or may not be
exempt from sales taxes, real estate taxes, and other taxes
depending on the state in which they are incorporated or
operate, and their purpose. Late or non-payment of owed
Related Info
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About Us
501 Consultants, Inc. was founded in
1994 to address the needs of nonprofits. With over 30 years of
experience working with board
members, committees, and the
entities they represent, we specialize
in non-profit organizations.
taxes can result is stiff penalties. IT is important to know what
taxes your organization might be subject to and when they
are due to steer clear of penalties.
Nonprofit financial statements can be titled differently and
include varying components than a for-profit's
statements. Generally accepted accounting principles
(GAAP) outline specific standards for both for-profit and
nonprofit statements. For example, a nonprofit's statement of
financial position (balance sheet) reports assets and
liabilities. Since a nonprofit does not have owners
(stockholders), what would be owner's equity or stockholders'
equity on a for-profit's balance sheet is simply net assets for
the nonprofit.
The net assets section should report totals for each of the
following classifications: unrestricted, temporarily restricted,
and permanently restricted net assets. These classifications
are based on restrictions that are associated with the
asset. Often, donors or grantors place restrictions on how or
the time their funds may be used. Plus, a Board may selfimpose restrictions as well. Accurate classification is
critical. Funds intended for a specific purpose (restricted)
should be tracked separately from funds that can be used for
day-to-day operations (unrestricted).
A nonprofit's statement of financial position (similar to a
business's balance sheet) reports the organization's assets
and liabilities in some order of when the assets will turn to
cash and when the liabilities need to be paid. Since a
nonprofit's primary purpose is to provide programs that meet
certain needs, it issues a statement of activities (instead of an
income statement or profit and loss) that reports revenue and
expense amounts according to the three above classifications
of net assets. Of importance to this reporting is whether the
accounting being used is a cash or accrual method. For
purposes of budgeting and reporting to the IRS, accrual is
preferred. Under the accrual method of accounting, revenues
and expenses are reported in the accounting period in which
they are earned and incurred, which may be different than the
period in which cash is received or disbursed. Boards should
have a policy determining which they use and why as both
have benefits and limitations.
*(Source: Accounting Coach)