A gain is measured by the proceeds from the sale minus the amount shown on the company’s books. Since the gain is outside of the main activity of a business, it is reported as a nonoperating or other revenue on the company’s income statement. Even if a nonprofit is exempt from federal income taxes, it is likely that its employees will be subject to employment taxes.

• This delicate balancing act requires technical expertise and careful documentation to satisfy various stakeholder requirements.
• The Internal Revenue Service (IRS) regulates nonprofit accounting with specific rules and practices for tax-exempt organizations.
• An organization is encouraged to determine what its own financially healthy balance might look like, and to plan (i.e., budget) toward financial goals that will help it to achieve, and maintain, that balance.
• Major donors, corporate sponsors, and recurring donors can all be excellent sources of reliable funding.
• A cash flow statement for a non-profit organization is a financial report that summarizes the inflow and the outflow of cash during a specific period.

Run your business with confidence

Financial statements are among the most critical reports your nonprofit’s accountant will compile every year. Each of these documents organizes and summarizes your accounting data in a different way to help you glean unique, actionable insights into your organization’s financial situation. Once you’ve got your bookkeeping system setup and have started generating financial statements, the final piece accounting services for nonprofit organizations of the nonprofit accounting puzzle is getting your tax obligations straight.

Common UBIT Myth Related to Nonprofit Revenue and Tax Impact

The budget process was described earlier in the Budget section as the way an organization goes about building its budget. In this, the fourth of a four-part series on good budgeting approaches, we discuss ways to present the budget for maximum understanding and clarity. Internal controls are the financial processes and procedures that enable the organization to safeguard its assets. Some systems, like Fyle, also allows volunteers to submit and track their receipts from within their everyday apps like Gmail, Outlook, Microsoft Teams, or Slack.

What is the Purpose of IRS Form 990?

Looking at these documents can tell you how much money you have, where your money is, and how it got there. Where exactly your income and expenses come from and how you group them in your budget will depend on the nature of your organization. An annual operating budget for a university will be very different than a budget for a small local art gallery. The solution you decide on should also allow you to do some form of fund accounting. This means instead of piling your money into one big “cash” account, you’ll need to distinguish between and track separate buckets of money. Our intuitive software automates the busywork with powerful tools and features designed to help you simplify your financial management and make informed business decisions.

Income Tax

The Statement of Activities is similar to an income statement for-profit organizations use. It details the nonprofit’s revenue, expenses, and changes https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ in net assets during a specific reporting period. The statement typically includes categories such as donations, grants, program service revenue, and other income sources. A nonprofit’s financial statements focus on expenses and nonprofit donations to nonprofit organizations. The goal is to showcase that funds from restricted and nonrestricted gifts go to the right programs and projects. Nonprofit accounting associations offer resources, training, and support specifically tailored to the needs of nonprofit organizations.

Compliance and Reporting Burden

And it may also include non-cash donations (or in-kind donations) of goods or services. You can grasp nonprofit accounting basics in just a few minutes, even if you’ve never taken an accounting course (and even if you hated math in high school). So you can understand what’s happening in your business and communicate effectively with your board members, donors, and financial team. A balance sheet line that includes cash, checking accounts, and certain marketable securities that are very close to their maturity dates.

What features should I look for in non-profit accounting software?

Proper cash flow planning can also help avoid financial pitfalls and improve the organization’s overall financial stability. Hiring a bookkeeper or other professional ensures that someone with training and experience always pays attention to the accounts and may notice something an untrained employee would miss. For example, many organizations meet the requirements that release temporarily restricted funds but don’t realize it because no one keeps track. Check in with your budget regularly, preferably bi-weekly or monthly, comparing your budgeted revenue and expenses against your actual income and expenses.