Nonprofit accounting is the process through which nonprofit organizations plan their financial transactions, record, and report them over time. When it comes to nonprofit accounting, accountability to the donor is everything that matters. That is to say, nonprofits do not have the same accounting procedure and requirements as those of for-profit organizations. In fact, nonprofit accountants must follow specific rules determined by the Internal Revenue Service (IRS) and their states.
The unique way nonprofits have agreed on doing accounting is fund accounting. Fund accounting helps nonprofits split their money into different groups of funds to organize them and ensure they are spent where the donor desires. Donors have the right to restrict their gifts. If a donor says their donation must be used on a specific program, the accountant will immediately move that money to the correct fund to ensure it is not used unlawfully.
This article discusses the steps to performing nonprofit accounting and the 10 best nonprofit accounting software to choose from.
Nonprofit accountants are highly trained. They will help walk your organization through the process they follow. But here are a few things nonprofits should do to remain on the right financial track and ensure IRS compliance.
Nonprofits can start bookkeeping manually with Excel or with additional software. Regardless of how your nonprofit records transactions, your bookkeeping must include:
The two forms of accounting are cash and accrual.
The cash method is easier and may make more sense to non-accountants. It reports revenue and expenses when they received the money. But there is also a better chance of error with the cash method, and it does not account for in-kind donations.
The accrual method is a more common accounting process because it focuses on when they earned the revenue instead of when they received the money. The accrual method is standard practice in GAAP.
Your state may also require your nonprofit to follow the accrual method, so do your due diligence when researching state requirements.
If you’re starting a nonprofit, you must start a separate bank account for the organization. You must never use your personal account to hold or spend money for your nonprofit. Many banks offer customized nonprofit accounts.
Nonprofits must reconcile their accounts at the end of each month to provide their board with updated financial information. Below are some tips to make it easier.
Purchase orders are records between a purchaser and vendor that confirm a transaction. Nonprofits that use purchase orders will record exactly where and how they spent the money.
In-kind items and services are difficult to record, but the IRS has created rules to follow that make the process easier.
When recording in-kind products or services, you must research the fair market value for each gift and record that amount when including these gifts in your reports. If a gift is valued at over $5,000, you should get the gift formally appraised.
When creating budgets for fundraisers or programs, you’ll need to determine your nonprofit’s financial goals and include realistic expense amounts for these goals. You’ll also need to include your expected income sources.
Quickbooks is the most popular accounting software for nonprofits. They provide discounted pricing for nonprofits. Organizations can use this software for invoicing, bookkeeping, tracking donations, and all other accounting needs. You can also connect your bank account and very easily track cash flows.
Quickbooks will also help you remain compliant with the IRS through reporting. You can set up automatic reports and use them any time you want.
As your nonprofit continues to grow, you can upgrade to Quickbooks Enterprise Nonprofit to achieve more – store and access donor information, vendors, and items.
You can also use Quickbooks to track your grant information effectively.
Donorbox makes tracking your donations on Quickbooks an absolute breeze! You can have your donations and donor data synced on both systems in 2 simple ways – 1. using Stripe with Commerce Sync and 2. using Zapier.
To connect Donorbox to your Quickbooks account using Stripe with Commerce Sync, you must have your Donorbox account linked to Stripe. You can easily activate the connection between Commerce Sync and Stripe and then, from Commerce Sync you can log in to your Quickbooks account and authorize the sync of data. After that, all your Donorbox donations data will be automatically logged in to Quickbooks Online, as shown below. Here’s the detailed step-by-step guide on connecting Donorbox and Quickbooks using Stripe with Commerce Sync.
To connect Donorbox to your Quickbooks account using Zapier, you need to activate the Zapier integration on the Donorbox dashboard. You’ll get an API key and then, you can log in to Zapier and choose Donorbox as your trigger app and Quickbooks Online as your action app. This way, you can sync your donors and donations data between Donorbox and Quickbooks. Read the thorough step-by-step guide to get a better insight and get started now.
After the sync of donor and donations data between both systems, this is how it will look like on your Quickbooks account –
Aplos advertises itself as an accounting tool made specifically for nonprofits. Their fund accounting software makes accounting easy for nonprofits.
Aplos provides the following features:
There is a 15-day free trial, and their starting package is $39.50/month.
Sage Intacct is a nonprofit software-based entirely in the cloud. This means nonprofits can access their financial information from anywhere. In addition to basic accounting features like a general ledger and cash management, Sage Intacct also offers an automated fund, grant, revenue, and billing process. They also include easy-to-use reporting and dashboards to make auditing more accessible and cheaper.
The cost for this software depends on the size of your accounting team and needs. You can contact them for the pricing by filling out a form on the website.
Accufund provides solid financial management along with:
Accufund is another cloud-based software that also includes third-party integration capabilities. With affordable prices and accessibility from anywhere, nonprofits have first-rate accounting, human resources, and fundraising features.
Accufund sells its products through US resellers. These resellers provide customized packages, training for nonprofit staff, and work to implement the software with your current system.
Xero is one of the most affordable accounting software on this list. Nonprofits using this accounting software can track and pay bills, connect the system automatically to their bank, and view all activities on Xero’s dashboard.
Xero also allows nonprofits to share all reports with board members, volunteers, and donors, pay staff online with Gusto, and access financial details from anywhere with their accounting app.
Xero’s packages start at $12 a month. Registered nonprofits can sign up for a 30-day free trial and receive 25% off all Xero packages. Organizations can cancel with only one month’s notice if the software is not a good fit.
On the other end of the financial sector is Blackbaud Financial Edge NXT. This organization has a reputation for excellence in the nonprofit world with its database software, Raiser’s Edge. Their accounting software has services for all types of nonprofits. Blackbaud Financial Edge NXT’s features include:
The price for this software depends on your organization’s needs. Nonprofits can contact Blackbaud for pricing and a customized demo.
Araize was created for nonprofits, and its features offer everything a nonprofit needs. With packages starting at $42 a month and no setup fee, most organizations can afford this software.
Araize features include:
Nonprofits can cancel Araize at any anytime if this software does not work for their organization.
Nonprofit+ is accounting software for nonprofit organizations to help them with fund accounting, restricted fund management, grant, and donor management. They also provide features like cash management and reporting.
The pricing is also designed for nonprofits and you can request a quote on their website.
Volunteer-run organizations don’t always need the same bells and whistles as other nonprofits. Money Minder has created an accounting software targeted toward these smaller organizations and doesn’t offer too much or too little.
Money Minder features help nonprofits:
Another feature that stands out with this software is the ability to track volunteer time by individuals or events.
Money Minder offers free packages that help you create a budget, and manage memberships and calendars. Their Pro package includes all features and costs $179 a year.
Cougar Mountain Software has dedicated nonprofit software to help nonprofits with accounting. Nonprofits can purchase this software as an on-site or cloud-based system. Transparency and security are a primary focus of this software, and its features include:
This software also offers grant and donation management and additional fundraising tools. Nonprofits can sign up for a 60-day free trial and get 2 hours of training and support before paying a dime. After the free trial, pricing depends on your nonprofit’s needs. Training is required to get the most out of the Denali software, and the company offers up to 24 hours of online and on-site training.
Nonprofit accounting does not have to be overwhelming. This blog will help you get started with insights on accounting statements, rules, steps, software names, and more. You must also check out the IRS website for more detail on nonprofit accounting and seek external consultants‘ help if the need be.
Check out Donorbox, the simple-to-use, affordable, and powerful solution for online fundraising. 50,000+ nonprofits worldwide have used our tool to boost donations and effectively manage their donors. Our features include Crowdfunding, Peer-to-Peer fundraising, Text-to-Give, Memberships, Events, Recurring Donations, and more.
Do you think expert coaching will help boost your fundraising efforts? Let us help you with that! Donorbox Premium comes with fundraising coaching, a dedicated account manager to help you along the way, high-performance tools, and priority support.
To read more tips and resources on nonprofit management and fundraising, visit the Donorbox Nonprofit Blog. Subscribe to our newsletter to receive a list of our best resources in your inbox every month.
For-profit accountants focus on earning a profit for their shareholders. Nonprofit accountants, on the other hand, are limited to planning, recording, and reporting a nonprofit’s finances. The primary reason for this is something called non-distribution constraint. The IRS has strict rules that say nonprofits cannot send excess revenue to their leaders.
Nonprofit bookkeepers are responsible for recording the daily financial information of your organization. Generally, bookkeepers include recording donations, processing payroll, allocating expenses, writing checks, making deposits, etc.
Nonprofit accountants are there to review the bookkeeper’s work and ensure that the organization understands and follows the rules put in place by the IRS. A nonprofit accountant will often have to perform these actions: Review accounts, understand the purpose behind decisions, prepare reports, prepare for an audit, file Form 990, reconcile accounts, and ensure GAAP standards are met.
The Financial Accounting Standards Board (FASB) has created a series of Generally Accepted Accounting Principles (GAAP). These rules include –
Nonprofits must file Form 990 with the IRS each year to remain tax-exempt. The IRS requires nonprofits to include 4 financial statements with this form. FASB 117 gives nonprofit accountants standards to follow when filing these documents.
The following financial statements must be provided and updated each year to remain in compliance with the IRS.