Finance can be a complex and intricate topic, especially when it comes to a nonprofit organization’s bookkeeping. Nonprofits must fulfill many requirements to ensure they maintain their nonprofit status. Failure to keep accurate financial records could force the IRS to revoke that status due to missing files or records. Creditors and investors may wish to see financial records as well before they donate, and improperly maintained files could cause them to doubt the validity of your organization. When it comes to bookkeeping for a nonprofit organization, there are several essential documents that you should ensure are updated and maintained at the end of each financial year.
Statement of Activities
When performing bookkeeping for nonprofit organizations, keeping track of your revenue and expenses is mandatory. This is known as a statement of activities. Revenue sources for a nonprofit may include donations, sales income, membership fees, and fundraising proceeds, among others. Missing or misreported funds are red flags for the IRS and could result in the removal of your nonprofit status. Donations should be recorded in even more detail due to the potential for fraud. Expenses could include rent, salaries, fundraising expenses, and travel costs. Not keeping accurate track of your expenses could lead to overspending and the eventual force of the shutdown of your organization.
Assets, Liabilities, and Net Assets
Assets are essentially everything of value that the nonprofit organization owns. These could include cash, investments, buildings, land, or tools and equipment. Liabilities are all of the organization’s debts. Net assets show the equity the organization earns. Net assets reflect the difference between the total expenses and the total revenue. These accounting measures should be properly recorded when bookkeeping for a nonprofit organization for several reasons. You’ll avoid losing track of debts you owe, or of objects that you own. Your net assets also provide proof to the directors of your nonprofit whether your work is sustainable. Failure to keep track of all financials required by law through accurate bookkeeping records could result in the failure of your organization.
Get Professional Advice
If you aren’t sure of where to begin and don’t want to make mistakes, consult a company that performs bookkeeping for nonprofit organizations. Experienced nonprofit accounting professionals will ensure that your records are up-to-date and accurately portray the financial health of your nonprofit organization. You may also find that better financial records will help your organization when applying for grants and other forms of revenue needed to fund your programs.