Bookkeeping for Nonprofits: A Definitive Guide

Now more than ever, part-time or in-house bookkeeping is not ideal, and switching to outsourced bookkeeping or accounting is becoming a more common solution. Many organizations are concerned about making the jump over to outsourcing, but with today’s advancements in technology, working with a remote expert team is almost seamless. Outsourcing can provide advanced and less costly bookkeeping services than a typical in-house bookkeeper. Both require very different levels of effort and expertise and the cost for full-service accounting is much higher.

Final words on the role of a nonprofit bookkeeper

For-profit organizations have it simple; they just track net income from sales. Whereas, nonprofit https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ organizations need to monitor multiple sources, including fundraising events and grants, while maintaining their financial position. Nonprofit accounting is a specialized method of tracking finances, emphasizing accountability and mission impact over profits.

Are you making these costly accounting mistakes?

They allow you to compare your budget’s goals to the income and spending over the budgeted year. Nonprofits need to order purchases ahead of time, budget for them and adequately fulfill them from the start. Purchases need to be orderly because of the strict rules on what you can spend your money on in a not-for-profit organization. By getting these systems in place, your nonprofit will be ready to accept, manage, and distribute funds to where they need to go the most. You’ll find more detailed information on some of these sections later on. Otherwise, there are free accounting choices, but you should consult a professional before making final judgments about your non-profit’s financial software.

How does nonprofit bookkeeping differ from small‑business bookkeeping?

Outsource complex accounting to professionals when needed, such as our catch‑up bookkeeping package that restores order fast. Send thank‑you letters within 48 hours and year‑end statements before January 31 to aid donor tax filings. Rotate board members on a finance subcommittee to review statements quarterly. Internal reviews build audit‑ready confidence and satisfy governance best practices.

Accounting Practices and Software

• A statement of functional expenses for nonprofit organizations is a financial report that itemizes expenses according to their purpose.
• From days of cash on hand to your current ratio, we teach you how to read your financial pulse—and respond proactively.
• But don’t just take it from us—see what nonprofit leaders have to say about working with our team.
• It ensures that funds are allocated and used according to donor restrictions and organizational purposes, enhancing transparency and compliance.
• Unlike for-profit entities, nonprofits must adhere to specific guidelines and standards to maintain their tax-exempt status and demonstrate their financial stewardship to donors and stakeholders.
• So check with your tax/legal team to make sure you’re prepared for any potential tax bills.

Explore how our platform can support your bookkeeping efforts and enhance your overall financial management. They carefully track all income and expenses, supporting the accounting team in creating reports and meeting regulations. Learn about the key components of a nonprofit’s statement of cash flows and how to properly interpret this important statement. Understanding the statement of cash flows is essential for assessing the financial health and sustainability of any nonprofit organization. Our clients are provided a deeply-discounted subscription to the leading, cloud-based accounting software platform available, Quickbooks Online.

Financial Policies and Procedures

• A good budget can act like a roadmap for a nonprofit, determining where and when the organization will deploy its resources, and whether it’s on the right track financially.
• Every year the IRS goes through 70,000 nonprofit applications that are applying for federal tax-exempt status.
• We’ll also cover non-profit reporting requirements and our best practice recommendations.
• Bookkeeping helps track your money to follow the law and make smart choices.
• Most nonprofits aim to keep administrative and fundraising costs reasonable while maximizing program spending.
• Similar to a for-profit income statement, the non-profit statement of activities reflects annual revenues and expenses.
• You’ll have secure, 24/7 access to your books and records, from anywhere you have a broadband connection.

These articles and related content is not a substitute for the guidance of a lawyer (and especially for questions related to GDPR), tax, or compliance professional. When in doubt, please consult your lawyer tax, or compliance professional for counsel. Sage makes no representations or warranties of any kind, express or implied, about the completeness or accuracy of this article and related content. A simple, intuitive interface is vital for nonprofits, especially those with limited accounting expertise.

Methods of nonprofit accounting

So, relying on them to operate the back office can lead to costly mistakes with tax filings and donation tracking. Additionally, it can lead to missed opportunities in the form of «untranslated» financial information or unidentified financial insights. In addition to paying employees, office & equipment expenses, and technology costs, nonprofits also need the right processes and procedures in place for audit readiness and mitigating watchdogs. Expenses should be allocated correctly to the appropriate programs, administration, and fundraising 5 Main Benefits of Accounting Services for Nonprofit Organizations categories.