Nonprofit accounting: Beginner guide + key financial statements

Bills and vendor invoices need to be categorized and recorded upon receipt. This ensures payments are processed 5 Main Benefits of Accounting Services for Nonprofit Organizations promptly and your financial reporting remains precise. We segregate duties and provide control activities to provide an internal line of defense for your nonprofit.

What Does a Bookkeeper Do for Your Nonprofit?

Using the QuickBooks Online Advanced plan, your nonprofit can keep a close eye on each project’s cash flow via the Cash Flow Dashboard. Reporting tools help you create a spending roadmap so you don’t overextend your cash flow. Finally, the https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ software’s CRM helps you get to know and retain donors via targeted engagement to keep your cash flow healthy.

Compare nonprofit bookkeeping features: Runners-up

• In those cases, nonprofit bookkeeping includes creating accurate invoices (that account for and collect any required sales tax) to track every sale.
• Bookkeepers and grant managers regularly review expenses and progress to ensure compliance with the grant’s terms, including spending deadlines and reporting requirements.
• As a bookkeeper, it may be necessary to meet with your nonprofit’s accountant weekly, monthly, quarterly, and yearly.
• Aplos stands out for its customer relationship management (CRM) component.

Unlike traditional business accounting, which focuses on profit, nonprofit accounting monitors how organizations use their funds to achieve their mission. Document unique donor requirements, special handling procedures, and the reasoning behind key financial policies. Cross-train staff on essential functions and maintain clear process documentation. This preparation helps your organization maintain strong financial management even when key personnel changes occur. Create systems that ensure continuity in your nonprofit accounting practices.

Nonprofit Bookkeeping vs. Accounting: Key Differences

Typical small-business accounting revolves around profit—how much a company is making, spending, losing, and saving. In contrast, nonprofit accounting centers on tracking funds, including responsible oversight of fund management. Fund accounting software’s primary goal is to show you and your shareholders, namely board members and donors, exactly where their money is going. To effectively track all of your nonprofit’s revenue streams, expenses, and restricted funds, you’ll need the right tools. While many organizations start out managing their finances in a spreadsheet, a specialized accounting platform will become necessary as your nonprofit grows. Proper accounting and financial management are necessary for nonprofit organizations to stay viable and remain accountable to the public, donors, funders, and other stakeholders.

Chris enjoys all sorts of different board games, and is an avid Stephen King and Dean Koontz reader. The majority of our bookkeepers have a bachelor’s degree in accounting. They are also highly trained in the specifics of nonprofit bookkeeping. This is unusual for a bookkeeping company because bookkeeping does not require a degree or certification.

Budgets

Bookkeeping does require training and experience but not a specialized degree. Most organizations will also need to track payments they are owed (accounts receivable), bills that they haven’t paid (accounts payable). Set up a logical filing system that anyone can understand, and always maintain digital backups. Yes, it takes time, but good documentation makes everything else easier—from grant reporting to tax preparation.

• Software that provides top-level financial tools isn’t helpful if your staff and board don’t understand how best to use it.
• Many small to mid-size organizations will delegate payroll processing to their bookkeeper.
• A nonprofit’s statement of cash flow tracks a nonprofit organization’s cash and financial health.
• Customers report paying more than $600 a month for NonProfitPlus’s full suite of features, so if you’re looking for affordable nonprofit software, NonProfitPlus probably isn’t it.
• In her free time, she enjoys crafting, reading, and spending time with her husband, two kids, two dogs, and three cats.

Managing Overhead Costs

• Smaller organizations with fewer transactions might outsource bookkeeping.
• Make your financial policies public and explain complex financial matters in simple terms.
• Bookkeepers can be paid staff members or volunteers, but they should understand GAAP principles and fund accounting.
• Although seemingly similar, for-profit and nonprofit accounting processes differ in many ways.
• Bookkeeping for a nonprofit is vital because it proves how an organization is spending its funds.
• By understanding these unique aspects of non profit bookkeeping, you can better navigate the complexities and ensure your organization’s financial stability and transparency.

All expenses related to the grant are recorded and categorized under the specific grant account. This ensures spending is in alignment with the grant’s purpose and budget. Nonprofit bookkeeping emphasizes accountability and transparency, guided by mission rather than profit.

Bookkeeping for nonprofits records every financial event—donations, grants, payroll, and program costs—so leaders can track resources and meet legal requirements. Unlike corporate accounting, nonprofit bookkeeping must show stewardship of restricted gifts and grant dollars. You’ll categorize each inflow and outflow, reconcile bank statements, and prepare reports that satisfy donors and regulators alike. One of the best ways to ensure your organization’s accounting is held to a high standard is by using software that’s specifically designed for nonprofits.