The Importance of Non-Profit Accounting
Nonprofits are extremely important in our society. A few examples of very important non-profits in our society are soup kitchens, charities, and animal homes. They do things for the community and offer services that are important to them.
However, non-profits do not want to make money as businesses do. The main thing they want to do is perform their duties and help the people they serve.
The way these nonprofits handle their money is also different because of their different goals. Non-profit accounting is a specialized area that makes sure that charities keep good records of their money and follow the law. Talk to a CPA in Seattle, WA, today. They can help you.
What is non-profit accounting?
A non-profit organization’s way of keeping track of its money is called non-profit accounting. It includes keeping track of money coming in and going out, as well as assets and debts.
Non-profit accounting, however, focuses on goal satisfaction and good resource management, while for-profit accounting is more concerned with making money and losing money.
Why is non-profit accounting important?
It is important for non-profit organizations to keep track of their money, show that they are responsible, and follow the rules set by the government. This helps them get the most out of their offerings, follow the rules about money, and make good use of what they have.
The key concepts in non-profit accounting.
Some important ideas in non-profit accounting are not found in other types of accounting. These are:
Fund accounting.
Donations to nonprofits are often limited to certain uses. Fund accounting is a way to keep these restricted funds separate from general business funds that are not restricted. This makes sure that gifts are used the way the giver wants them to be used.
The GAAP standards.
Most businesses have to follow Generally Accepted Accounting Principles (GAAP) when they do their accounts. Non-profits also use GAAP, but they make some changes that are unique to the non-profit industry.
Some best practices for non-profit accounting.
Here are some of the best ways to do accounting for a non-profit:
1. Make a new bank account.
This helps keep track of gifts and makes sure they are used correctly. It also helps keep your work and personal money separate.
2. Pick a method for accounting.
Cash accounting and accrual accounting are the two main ways to do accounting. Cash accounting only records income and costs when cash comes in or goes out. No matter when the money changes hands, accrual accounting records income and costs as soon as they happen. It is up to the nonprofit to pick the way that works best for them and their donors and investors.
3. Keep track of gifts and income.
Keep careful records of all the ways you get money, like grants, gifts, registration fees, and event fees. This means keeping track of where each gift comes from (person, charity, government, etc.) and what rules or limits come with it.
4. Track your spending.
Sort your costs into groups to see how your money is being spent. This means keeping track of costs by project, department, or program. This helps you find places where you can save money and work more efficiently.
5. Write down everything you do.
For at least seven years, keep receipts, bills, and other cash papers. This helps you back up your financial records and show that you are following the rules for taxes and regulations.
6. Prepare financial statements.
Making financial statements like balance sheets and pay statements on a regular basis will help you keep track of your financial health. These papers give you a quick look at the financial health and success of your business.
7. Think about getting an accountant.
A skilled accountant can help you set up your system, make sure you are following the rules, and give you good financial advice. Accountants can also help you understand your financial info and make your financial accounts.
Following these best practices is a good way for nonprofits to protect their finances and show that they are using their resources to carry out their goal.
