A Guide to Basic Accounting Procedures for Non-Profits


Non-profit Accounting is a critical component of running a non-profit organization. Understanding how to create financial statements and understand tax responsibilities is necessary, especially if the non-profit is tax-exempt. Other essential tasks include opening a bank account dedicated to the non-profit’s use. In addition, non-profits must decide on their chart of accounts and how they will record their accounting transactions. There are several options, including paper ledgers and nonprofit-friendly software. Accountants must also be familiar with preparing purchase orders and other documents related to purchasing and distributing goods and services.

Statement of Activities

A statement of activities is an essential document in non-profit accounting. Like the Income Statement that businesses issue, it outlines the entire organization’s activities and its revenue and expenses for a particular reporting period. Another key document is the Statement of Cash Flows, which reports on the amount of money that flows into and out of the organization. This document shows how well an organization’s programs and activities are using and generating cash.

Non-profits should also pay attention to their net assets. While they may have plenty of cash on hand, they should refrain from using it to make decisions based on the assumption that they have no more resources. It’s essential to remember that a non-profit’s net assets are the total of its expenses minus its revenue. This will allow you to see whether the non-profit has enough cash to pay its bills and meet its financial goals.

A non-profit’s statement of activities differs from that of a for-profit organization. It provides detailed information about transactions and programs, with columns reporting the number of revenues and expenses in different categories. It also includes information about the organization’s restrictions on its funds. A non-profit statement of activities can also show if the organization complies with the financial regulations governing its activities.

In non-profit accounting, the statement of activities lists its assets and liabilities. Assets include cash equivalents, gift certificates, and other items. These funds can be used for legal expenses. On the other hand, liabilities are money that the organization owes to other parties.

Statement of Financial Position

A non-profit organization’s Statement of Financial Position is vital to understand. The document is the equivalent of a for-profit balance sheet and presents a snapshot of the non-profit’s financial health. It consists of both assets and liabilities. The organization’s cash and investments are listed in the assets section. A list of obligations and debts is a liability. Liabilities are divided into current and long-term categories based on when they must be paid.

The financial statements of non-profit organizations should be detailed enough to enable the public to understand the organization’s current financial situation. The information should be transparent enough to communicate the organization’s economic trends and identify opportunities for improvement. An organization’s net assets should always be more significant than its liabilities. An organization with an asset surplus is healthy and can continue growing. Non-profit organizations should also use accurate fund accounting to track their assets and restrictions. Different from the past, precise fund accounting does not distinguish between temporarily restricted and permanently banned funds.

A non-profit’s Statement of Financial Position is similar to a for-profit Balance Sheet. It offers a bird’s-eye view of the value and health of an organization. It also has a section with its net assets in it. Net assets are the total assets multiplied by liabilities if any. Net assets differ from owner’s equity because non-profits do not have stockholders or owners.

Income Statement

An income statement is a financial statement for non-profits. It contains details about the organization’s assets and liabilities. In a non-profit, purchases can be quickly converted into cash. On the other hand, noncurrent assets will not be available for money until later. Noncurrent assets include cash, gift cards, and depreciable assets. On the other hand, liabilities are those an organization owes money. Non-profits must manage these assets.

Cash flow is essential to non-profit organizations because they need to be able to pay bills and other expenses. A cash flow statement can help non-profits keep track of their cash flow. It also allows non-profits to create more accurate budgets. For example, non-profits can identify spending habits by tracking how much each activity costs.

Another critical aspect of a non-profit’s income statement is the program expenses. These are the expenses directly related to the programs an organization is running. For example, a non-profit might have three primary programs and will report the costs associated with each program separately. Moreover, a non-profit may allocate some of its general and management salaries to fundraising activities. This will be determined by how much time each employee spends on fundraising activities.

Income statement in non-profit accounting is essential for both for-profit and non-profit organizations. It shows an organization’s financial activities, unlike a balance sheet, which merely indicates a company’s total assets. The income statement reflects the economic activities of the non-profit over time. Non-profits have no owners or shareholders, so their income statement does not include their equity.


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