As mentioned previously, the best way to ensure your nonprofit’s finances are tracked and reported properly is to work with an accountant. Yes, registered nonprofit associations need accountants or accounting software to manage and properly record transactions. Nonprofits have to adhere to tight rules around what they can and can’t spend money on, and there are specialized tax rules and accounting practices that they have to follow. Nonprofit accounting includes the process of recording and reporting the different transactions entered by a nonprofit organization.

Managing Donors in Nonprofit Accounting

Determining how to distribute these expenses equally becomes a complex puzzle when multiple programs share staff, space, and resources. Most organizations rely on various funding sources, creating complex nonprofit accounting requirements. The sheer volume of reporting requirements can overwhelm even well-staffed nonprofits. Beyond the annual Form 990, organizations often juggle multiple grant reports, each with its own deadline and format requirements.

Nonprofit Accounting: A Complete Guide for Organizations

Nonprofit accounting, similar to other aspects of your nonprofit’s strategy, requires your organization to compile several key reports and documents to organize your financial data. The statement of activities (also sometimes called the operating statement) is like the nonprofit version of the income statement. Like the income statement, it tells you how “profitable” your NFP was over a given https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ period by showing your revenue, minus your expenses and losses.

Financial Stewardship

The annual report aims to help attract donors while fostering a culture The Key Benefits of Accounting Services for Nonprofit Organizations of transparency and accountability. By showing the amount of their equity that is restricted funds, Wellington Zoo is being transparent about their accounting practices and assuring donors they’re using funds as designated. No matter who does your books, choosing the right accounting software for your nonprofit is crucial.

• This preparation helps your organization maintain strong financial management even when key personnel changes occur.
• The tax code for nonprofits can be confusing, and tax reforms can affect everything from how you report income to how you manage volunteers.
• You can use the statement to assess the usage of funds, track performance, and make decisions about future operations.
• The website guidestar.org is a resource one can use to obtain financial (and other) information reported on nonprofits’ Form 990.
• Get free guides, articles, tools and calculators to help you navigate the financial side of your business with ease.

Fundamentals

• Because nonprofits are so different from regular businesses, they have unique accounting requirements and best practices.
• The best accounting software received top marks when evaluated across 10 categories and more than 30 subcategories.
• Yes, the entire completed Form 990, excluding certain contributor information on Schedule B, must be made available to the public.
• Also, appointing these tasks to an existing team member may be difficult since 18% of nonprofits list staffing as their greatest challenge.
• Transparency is essential in nonprofit organizations as it lets board members and donors know how the money is being spent for the programs they intended.

It shows assets, liabilities, and net assets (the nonprofit version of equity), all broken down by fund. This helps stakeholders understand what the organization owns, owes, and has available to fulfill its mission—across every fund and initiative. Fund accounting makes it easy to track and honor those restrictions, helping organizations avoid legal risks, financial penalties, or loss of tax-exempt status.