Accounting Guidelines For Nonprofit Organizations

By Author: Verna Derosier
Total Articles: 5
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Nonprofit organizations, or NPOs, have special set for accounting principles that do not apply to other business. They have to answer to the national and local governments, like every business does. However, they must also answer to granting agencies, board of directors, and other several strata of government services that commercial businesses usually do not.

Most nonprofit organizations raise their funds from multiple resources, such as grants, investments, sponsorships, fundraisings, membership fees, public contributions, and non-monetary assistances. They also receive contributions in the forms of labor or expertise, which is known as in-kind contributions. Grantors frequently require a certain fraction of matching funds to be raised by a nonprofit organization to show support for the organization from the community or other resources. A considerable amount of paperwork is needed to keep record of all these requirements, in addition to the basic accounting and annual government reports.

In order to keep accurate documentation of expenditures as they tally up to grant periods, nonprofit organizations usually ...
... use the accrual accounting method. This allows them to accrue or to accumulate expenditures against each funding resource and pay them in the first two weeks of the following month, while charging each expense off the month in which it was accrued.

Because several different resources are used in fundraising in order to provide amenities to the targeted demographics, accounting nonprofit funds must be utilized, which is a way of dividing activity costs among various funding resources. Allocation of expenditures in proper proportion to the appropriate funds is a labor-intensive task as many expenses, such as salaries and benefits of the staff, must be distributed on different grants.

Then, Form 990 must be filed annually with the Internal Tax Service, as a mandatory procedure of accounting for nonprofit organizations. The Form 990 determines if the nonprofit organization will be permitted to retain its tax-exemption status, as well as to determine if the nonprofit organization has unrelated business-taxable income. Due to the non-standard financial statements required to produce the data for Form 990, accounting software used must include flexible reporting capabilities.

Furthermore, accounting for nonprofit organizations require filing of periodic reports to grantors, showing how much cash from grants are being spent. Such reports include narratives, financial information, figures of people serviced, in-kind and matching contributions and other statistical data.