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6 Things You Need to Know About Nonprofit Accounting

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Find out more about nonprofit organizations, why they need managed accounting, and how nonprofit bookkeeping can contribute to their success.

A few areas of particular consideration for nonprofit accounting include a higher level of financial surveillance, donor expectations, overall cash flow, and checking 501(c)3 status. Unlike most for-profit businesses, the specific circumstances surrounding nonprofit accounting can present some daunting challenges regarding financial management, and since your nonprofit is driven by a mission, failure to perform in any area successfully could result in more than just a loss of profit.

Higher financial scrutiny

Creating a budget and matching it against financial gains and losses are just two of the expectations for the nonprofit organization. Nonprofit policies and procedures require that the nonprofit accountant investigate any budget discrepancies with the executive director and ensure that internal checks and balances are implemented and functioning as intended.

 The financial health of your nonprofit can be determined by both audits and watchdog groups that evaluate and report their findings on public rating systems. Nonprofit bookkeeping ensures that your nonprofit performs well and continues to attract donors based on high accountability ratings.

Donor expectation and fund assignment

Donors expect their money to be spent on the nonprofit’s specified mission, or cause. For this reason, nonprofit accounting includes designations for donation restrictions. This provides assurance to grant funders that their donations are spent on programs or operations designated for their specific purposes. Organizing nonprofit accounts and following strict guidelines for their designation requires the allocation of funds into either restricted funds, temporarily restricted funds, or unrestricted funds.

Additionally, a non-distribution constraint safeguards additional funds and reinvests them in your company’s cause.

Cash flow considerations

In addition to ensuring that funds are used per donor specifications and restrictions, nonprofits have to be cautious about spending on fundraisers, administration, or overhead expenses.  It’s imperative that nonprofit bookkeeping is used to budget and plan in order to improve cash flow forecasting. In addition, government grant conditions and policy changes should be monitored closely so that opportunities may be considered and oversights are avoided.

Checking 501(c)3 nonprofit status

Checking for nonprofit status is critical to the success of the nonprofit. Nonprofits are responsible for applying for their 501(c)3 status and verifying that the Internal Revenue Service (IRS) received their application. Mismanagement of this process or failure to understand the stipulations to maintain it could result in a revocation of your status as a nonprofit venture.

Keep your eye on the greater good

Don’t let mismanagement impact the goal of your mission and the good that comes from all of your efforts. Let KPMG Spark help provide your financial surveillance and forecasting, assist with monitoring donor expectations, and help you check your 501(c)3 status with dedicated teams of nonprofit bookkeeping managers and specifically configured software for nonprofit organizations. Contact KPMG Spark today and visit with an accounting specialist dedicated to your small to medium-sized nonprofit organization’s success and tax preparation.

 

The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG LLP.

This blog article is not intended to address or provide advice concerning the specific circumstances of any particular individual or entity and does not constitute an endorsement of any entity or its products or services.

Some or all of the services described herein may not be permissible for KPMG audit clients and their affiliates or related entities.

The following information is not intended to be “written advice concerning one or more Federal tax matters” subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230. The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.

KPMG LLP does not provide legal services.

KPMG SparkJune 14, 2022Posted In: Accounting Info

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6 Things You Need to Know About Nonprofit Accounting

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