Although similar in basic structure with any other profit-oriented business or organization, there are certain accounting rules and elements that are unique to non profit organizations. Unlike businesses which are accountable only to the government the same as everybody else, non profit organizations are also accountable to their board of directors, donors, funding organizations as well as several agencies of the government.
The following describes the accounting elements and structure, some of which are uniquely applicable only to a not-for-profit organization.
a) Funding Sources
Unlike traditional businesses which earn from the sales of their products and services, non profit organizations receive funds from a diversity of resources: grants; membership fees; income from investments; income from fundraising activities; donations and financial contributions from private, corporate or public entities; and other contributions in the form of non-monetary goods. Most granting agencies and entities provide funds that would match a certain percentage of funds already raised by the organization. Such activities need additional tracking and paperwork for proper facilitation.
b) Accrual Basis of Accounting
Funds are often received based on grant periods, and in such cases it would be more effective for the non profit organization to use the accrual method to keep accurate track of their expenses. In accrual basis, items are included when they are earned and this allows them to accrue expenses for each fund received.
c) Fund Accounting
The structure of receiving funds from several sources requires the organization to maintain a detailed sub-category through non profit fund accounting. In this way, the program costs such as salaries, benefits and other expenses can be allocated and distributed in proper proportion to the various funding sources.
d) Government Reports
Non profit organizations make use of Form 990 or the Return of an Organization Exempt from Income Tax to report their financial information to the IRS. This return is used to determine if the organization can retain its tax-exempt status. The data and reports required for Form 990 is non-standard and would be best handled using accounting software specifically programmed for accounting for non profit organizations.
e) Other Reports
As mentioned earlier, non-profit organizations are also accountable to grant providers and these would require a periodic filing of reports to clearly indicate which expenses their funds were allocated to. This is usually in the form of monthly or quarterly financial statements, which is accompanied by a verbal and written narrative of the program. To accomplish such non profit fund accounting, the organization needs to maintain all the required internal reports from whence this information shall be derived from.
The following describes the accounting elements and structure, some of which are uniquely applicable only to a not-for-profit organization.
a) Funding Sources
Unlike traditional businesses which earn from the sales of their products and services, non profit organizations receive funds from a diversity of resources: grants; membership fees; income from investments; income from fundraising activities; donations and financial contributions from private, corporate or public entities; and other contributions in the form of non-monetary goods. Most granting agencies and entities provide funds that would match a certain percentage of funds already raised by the organization. Such activities need additional tracking and paperwork for proper facilitation.
b) Accrual Basis of Accounting
Funds are often received based on grant periods, and in such cases it would be more effective for the non profit organization to use the accrual method to keep accurate track of their expenses. In accrual basis, items are included when they are earned and this allows them to accrue expenses for each fund received.
c) Fund Accounting
The structure of receiving funds from several sources requires the organization to maintain a detailed sub-category through non profit fund accounting. In this way, the program costs such as salaries, benefits and other expenses can be allocated and distributed in proper proportion to the various funding sources.
d) Government Reports
Non profit organizations make use of Form 990 or the Return of an Organization Exempt from Income Tax to report their financial information to the IRS. This return is used to determine if the organization can retain its tax-exempt status. The data and reports required for Form 990 is non-standard and would be best handled using accounting software specifically programmed for accounting for non profit organizations.
e) Other Reports
As mentioned earlier, non-profit organizations are also accountable to grant providers and these would require a periodic filing of reports to clearly indicate which expenses their funds were allocated to. This is usually in the form of monthly or quarterly financial statements, which is accompanied by a verbal and written narrative of the program. To accomplish such non profit fund accounting, the organization needs to maintain all the required internal reports from whence this information shall be derived from.
SHARE
