Finance

Accounting for Nonprofit Organizations

Accounting practices for nonprofit organizations differ significantly from those used by for-profit businesses. Nonprofits generally receive the majority of funds from donations and dues instead of selling merchandise or services. It is not well-known that certain nonprofits are watched closely to ensure that they are not misappropriating funds. Citizens donate to nonprofits because they believe these contributions make a difference for those in need. For nonprofits to maintain compliant accounting systems, utilizing services such as MIP Fund Accounting can help.

Accounting for Nonprofit Organizations

Determining Proper Accounting Method

While accounting for nonprofits involves specific differences, determining how transaction recording takes place. Nonprofit must decide whether they will utilize either an accrual or cost-based accounting system. As it is commonly understood, an accrual system permits the nonprofit organization to journalize transaction before any funds are received. Conversely, cash-basis accounting involves recording transactions only when the business gets funds. Both options have positives and negatives, so an accounting system like MIP Fund Accounting should help determine the best choice.

Determining Proper Financial Statements

Understanding the different financial statements nonprofits use is essential. For-profit businesses use common statements such as the balance sheet, income statement, and statement of stockholders’ equity. While the premise is similar, nonprofits use financial statements such as the statement of financial position and statement of activities. Using a proper nonprofit accounting system should enable these entities to generate the correct forms.

Explaining Taxes to Employees

The majority of nonprofits fall under the category of being tax-exempt. With this being the case, employees may believe they are exempt from paying taxes also. With the use of an accounting system like MIP Fund Accounting, nonprofits will be able to produce accurate payment information for employees.

Whether it is for a nonprofit or for-profit business, accounting is a task reserved for the diligent. Accounting software has advanced to the point of providing excellent information about nonprofit accounting structures.