Best Bookkeeping Practices as a Nonprofit Organization

Aug 23, 2023

While starting a nonprofit can be gratifying, it also poses significant challenges. In this article, we will discuss specific bookkeeping strategies that can help your young nonprofit thrive.

Use Good Accounting Software

Different nonprofit organizations often require different accounting software based on several factors like their size, funds, activities, and objectives. As a result, they might benefit from software made to match their unique situations.

For example, if you are a small or new nonprofit with basic bookkeeping needs, you can look into simple and inexpensive options like FreshBooks or Zoho Books.

If you are an established nonprofit with complex financial operations to manage, you might choose popular comprehensive options like QuickBooks or Xero.

Suppose you need software with nonprofit-specific features such as handling multiple locations, currencies, branches, and restricted funds or grants. In that case, you may need software with nonprofit-specific features like Aplos or Sage Intacct. These can assist with managing multiple entities, allocated funds, budgets, and donor and grant reporting.

Track Donor Information

Accurately recording donor gifts is key for nonprofit reporting and establishing donor relationships over time. Ensure you have systems to capture essential details like contact information, gift amounts, purpose, matching eligibility, and more. This supports acknowledgement letters and tax receipts. 

You can also use donor management software like DonorPerfect or Bloomerang to track donor data and engagement. 

Implement Controls

Nonprofits need to demonstrate good financial stewardship of donor funds and government grants. Having good financial controls shows donors and regulators that funds are being used well. Strong financial controls such as:

  • Requiring multiple sign-offs on expenditures
  • Keeping accounting staff separate from cash handling
  • Performing regular audits, and 
  • Securing access to financial systems 

Will help prevent mismanagement or fraud. You should also document your policies and procedures and train your staff on them.

Conduct Annual Audits

Audits are independent examinations of an organization’s financial statements and records by a qualified auditor. It can help nonprofits verify the accuracy and completeness of their financial information and ensure that they follow generally accepted accounting principles (GAAP) and internal controls. 

Audits also help nonprofits demonstrate their financial transparency and accountability to their donors, regulators, and the public.

Follow Accounting Standards

Nonprofits follow nonprofit accounting standards to report their finances. These standards are based on GAAP, which are the common standards for accounting in the U.S. 

The main source of GAAP for nonprofits is ASC 958, which covers topics like net asset classification, financial statement presentation, and fund accounting. In 2016, a new standard, ASU 2016-14, was issued to improve the transparency and usefulness of nonprofit financial statements. 

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