Have you ever been curious about what steps it would take to start your own nonprofit? As with every business, the place to start is with how to account for one. Knowing what goes into nonprofit accounting will help translate the idea in your head to an organization that can change people’s lives in the real world. Below we will list information covering the basics of nonprofit accounting.

What does it mean to be a nonprofit?

1. A nonprofit is categorized as an organization that’s created with a purpose other than making a profit for its owner.
2. Restricted vs. Unrestricted funds – Restricted funds mean that money is required to be spent only on a specified activity. For example, restricted money donated for a scholarship fund would need to only be used to provide scholarships. On the other hand, unrestricted funds may be used at the nonprofit’s discretion to further the mission.
3. The money collected by a nonprofit organization is meant to be distributed in a way that funds a specific mission.

Basic Documents

1. Budget – The budget for a nonprofit is one of the most important documents. It defines what purposes funds will be used for, estimate revenue & expenses, and provide a performance goal. It’s important to note that regularly maintaining budgets serve both short term and long term purposes within a nonprofit organization..
2. Statement of Financial Position – This document is the “Balance Sheet” for nonprofits. It shows the assets and liabilities of a nonprofit with the intention of displaying a nonprofits assets. The net assets (assets – liabilities) are intended to be reinvested into the organization.
3. Statement of Activities – This document helps nonprofits track revenue, expenses, and changes in net assets. Those three categories will often be split into categories to separate “restricted” vs. “unrestricted” funds.

Running a nonprofit effectively.

1. Be specific! Each nonprofit will operate in a different way. It’s important to find what specific software, systems, and team dynamics work. It’s best to find tools that specialize in nonprofits.
2. Review financial documents often. Keeping accurate and reliable accounting plays a vital role in both the present and future of a nonprofit organization. It helps bridge the gap between “where we are” and “where do we need to be?”. Budgets are especially useful in noticing if actual results are close to budget forecasts.

We hope this blog provides you with useful information regarding nonprofit accounting. If you have any questions about accounting in QuickBooks feel free to reach out to us! We specialize in QuickBooks Online, migrating from QuickBooks Desktop to QuickBooks Online, and QuickBooks Training.

Thanks for reading!
The QBcure Team