Bookkeeping Basics for Nonprofits

It is extremely important to keep articulate records of every financial transaction conducted on behalf of your organization. Whether or not your organization is required to file a 990 (tax return), proper bookkeeping will help you to assess your financial position, evaluate your spending habits, analyze the success of fundraising campaigns, plan for expansion of programs and services, and properly acknowledge contributions.

Although there are a lot of software programs that make bookkeeping almost as simple as balancing a checkbook, it is quite helpful to understand the methodology used to keep track of your organization’s money. Even if a volunteer or accountant does your bookkeeping, understanding the financial reports they prepare will help you make better business decisions. Because board members are responsible for an organization’s financial position, all should have an understanding of basic bookkeeping and should be able to read financial statements.

There are three types of financial statements that should prepared each month:

• An Income and Expense Statement (also called a Profit and Loss Statement) shows money in and money out over a period of time. When your income exceeds your expenses, you have a surplus.

• A Balance Sheet shows your fund balance as of a specific date. This is determined by subtracting your liabilities (what you owe) from your assets (what you own). Assets can be fixed (long-term) or current (easily converted into cash). Accounts Receivable are funds you are expecting to receive in the future and are an asset. Accounts Payable are the bills you need to pay and are an example of a liability.

• A Cash Flow Statement shows the change in cash on hand during a specific period of time. Cash in is added and cash out is subtracted from the beginning cash balance.

A chart of accounts is a specific categorization of your income, expenses, assets, and liabilities. Each of these is broken down and might include:

Income – Donations, Grants, Membership Dues, Special Events

Expenses – Salaries, Rent, Postage, Printing, Supplies

Assets – Building, Computers, Equipment, Furniture, Petty Cash, Bank Accounts

Liabilities – Credit Cards, Mortgage, Bills

To ensure your financial integrity, make sure to:

• Keep all of your receipts and organize them so they are easy to find

• Use a bank account and keep your organization’s money separate from any personal funds

• Have two people review and sign every check; if possible, have a third person prepare and process checks

• Prepare and analyze financial statements at the end of every month and year, comparing them to the last period

• Work with an accountant to set up a system that makes sense for your organization