What’s Involved with Nonprofit Bookkeeping?
A common question to those new to the world of nonprofit organizations is how much accounting and bookkeeping is really necessary for charities, and churches. My answer? It’s more vital than if you were starting your own business. It’s absolutely critical for executives and directors to have at least a basic understanding and skill in financial management, because expecting others to manage it for you isn’t a good option – it’s asking for trouble.
Having the basic understanding of bookkeeping and financial management ensures that the books are always reliable, and being able to generate financial reports and analyze those statements, will give you a deeper understanding of how you’re doing on many different levels.
The financial management you’re going to be getting into with a nonprofit organization is basically like any other companies. Preparations for a third party audit, basic methods of internal controls, a firm grasp of a solid accounting system, budget cycles and annual filings… this is all indispensable to your board of directors, and audit committee, not to mention the overall financial well-being of the organization.
Because each organization is different in the financial issues they fast and the fund-raising methods they have, every organization will be treating their reporting and statement creation a little bit differently. Different situations calls for different analysis of different elements – not being able to create the reports needed because of a lack of accounting structure can be very bad. These reports show if the organization itself is financially stable, what financial obligations it’s facing, how much it’s spending on staff, as well as recent financial changes the organization has experienced.
What sort of reports would be needed by a nonprofit organization?
What’s Common Monthly:
- Balance sheet, or statement of position
- Income verses expenses sheet, showing actual, up to date information
- Strong report showing tax and financial highlights, including grants received and short term loans. This report is essential for managing cash flow
What’s Common Quarterly:
- Detailed fund-raising reports. These should include status reports of foundation proposals and actual vs. projection regarding donations
- Cash flow projection
- Fee for service report, which details fee-paying clients and revenue
- Payroll tax report
What’s Common Annually:
- Federal forms, which include state reports, schedule A, and 990
- Statement of activities
- Statement of position
- Income statement for each and every program
- Draft of financial statements for the year
- Audited financial statements for the entire organization
- Management letter from the auditor