For example, you’d likely put deferred revenue from advance registrations for an event that will happen two months from now close to the top of the list and the 10-year mortgage on your nonprofit’s new facility The Key Benefits of Accounting Services for Nonprofit Organizations near the bottom. The IRS requires an actual or projected financial snapshot of your nonprofit when filing for 501c3 status. When filing Form 1023, you must include your organization’s balance sheet with a list of your nonprofit’s assets, liabilities, and net assets.

Balance Cheat Sheet

Using a personal bank account and keeping a shoebox full of receipts isn’t going to cut it. You probably didn’t start a nonprofit organization to stare at spreadsheets and Google things like “how to record an in-kind donation.” But proper accounting (and the analysis it lets you do) is crucial to the survival of your organization. Our intuitive software automates the busywork with powerful tools and features designed to help you simplify your financial management and make informed business decisions. An asset’s useful https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ life is an estimate of the number of years an asset will be used, i.e., provide value to the organization. IRS guidelines and industry standards are good references to consult in determining the useful life of assets.

BAR CPA Practice Questions: Interpreting Financial Statement Fluctuations and Ratios

This filing, which often involves a fee, officially starts the dissolution process and may trigger the requirement to notify creditors and other stakeholders of the organization’s intent to dissolve. When a fixed asset is disposed of or sold, it should be removed from the books of the organization. An organization raises $6,000 of contributions, $100 of other support, and $4,000 accounted for as agent, trustee, or intermediary transactions because donors have specified beneficiaries without granting variance power.

Identifying and Managing Risks Associated with Nonprofit Assets

Accurate reporting helps maintain donor confidence and supports fundraising efforts by demonstrating responsible management of funds. Additionally, it facilitates strategic planning and decision-making within the organization by providing reliable data on its financial status and resource allocation. From a broad perspective, unrestricted net assets refer to funds that an organization can use at its discretion to support its mission and operations. These funds are not subject to any donor-imposed restrictions and can be used for any purpose deemed necessary by the nonprofit. Unrestricted net assets are an essential component of a nonprofit’s financial health as they provide flexibility and stability in managing day-to-day operations and pursuing long-term goals.

• For more information about how to create a budget, check out the National Council of Nonprofits guide to Budgeting for Nonprofits.
• It includes accounts payable, debt, and other expenses, such as amounts owed to employees, vendors, and contractors.
• However, with our expert nonprofit bookkeeping services, this doesn’t have to be the case.
• Financial ratios can help determine if a not-for-profit has sufficient resources and determine if it is using those resources efficiently to support its mission.
• You’ll find your organization’s liabilities organized by current and non-current liabilities on the Statement of Financial Position.
• Understanding and effectively managing net assets is vital for nonprofit organizations.

It’s essential that you adhere strictly to accounting principles to make sure your financial information is accurate and compliant at all times. Assets are what your organization owns, liabilities are what it owes, and net assets represent the difference between the two (essentially, your organization’s equity). The accrual method is especially important if your nonprofit has restricted funds, as it allows you to record donations and grants in the correct period, even if the cash hasn’t been fully utilized yet.