Accounting, on the other hand, is using that information to provide a detailed analysis of your finances. Think of bookkeeping as studying for a test—it’s the necessary first step you must take to prepare yourself for the big exam. In the same way, bookkeeping can prepare your nonprofit’s financial records and budget for tax filings, annual reports, and every other deep dive into your assets.

Financial Statements for Nonprofits

The impact of accurate bookkeeping trickles down to every aspect of your nonprofit. Efficiency, transparency, and compliance are the hallmarks of an organization with effective bookkeeping. But expense allocation is even more complex in nonprofit bookkeeping, thanks to the need for functional expense reporting. Each expense must be recorded in your accounting software and allocated to the correct expense account, like office supplies, rent expense, payroll, etc. Both to track money coming into your organization and share with your donors as proof of their gift.

Payment solutions foryour business

Accounting software helps business owners understand how money flows in and out of https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ their businesses. Nonprofit organizations often receive funds that are restricted for specific purposes by donors or grantors. These restrictions may limit how funds can be used and require separate tracking to ensure compliance.

Compliance and Regulations for Nonprofits

Donors will be more likely to give if they feel confident that you will use their money wisely. This includes investing in necessary overhead expenses such as technology, personnel, and other operational costs. The size and complexity of a nonprofit affect how often reports are needed. Bookkeepers handle many types of financial data that need absolute precision. Even minor errors in recording transactions can result in poor decision-making and potential legal issues. Always attach supporting documentation (invoices, receipts, grant agreements) to transactions in QuickBooks.

• A well-organized chart of accounts is essential for effective bookkeeping in nonprofits.
• Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post.
• GnuCash’s robust features make it ideal for nonprofits with a deeper understanding of accounting and needing more detailed control over their finances.
• Wave uses accountant-friendly double entry accounting — just set them up and get back to your organization.
• Invoices are legal documents and should have your organization’s logo, name, address, email, phone number, invoice number, and date.
• This is most apparent at smaller, volunteer-run nonprofits that “do the books” manually or with Excel spreadsheets.

Internal reviews build audit‑ready confidence and satisfy governance best practices. Quick reconciliations reveal fraud faster and ensure cash balances remain trustworthy. At the end of the month, you must reconcile revenue and expense reports with your bank account and keep your accounts and reports up to date. As your nonprofit grows, you must protect yourself and the organization from fraud. In this article, we’ll discuss key bookkeeping responsibilities and steps to efficient bookkeeping and provide 3 software options that can help. If necessary, adjustments are made to reallocate funds within the grant budget to align with changing project needs, always in accordance with the grantor’s guidelines.