Nonprofit Bookkeeping 101: Everything You Need to Know in 2025

Your statement of activities should categorize revenues into restricted, temporarily restricted, and unrestricted. Similar to a for-profit income statement, the non-profit statement of activities reflects annual revenues and expenses. A non-profit statement of financial position should reflect all restricted, temporarily restricted, and unrestricted assets held at a given date. By the way, 1-800Accountant can support your non-profit with professional bookkeeping and accounting services. In the past, the general rule was that nonprofits should put at least 65% of their funding toward program expenses and spend no more than 35% on overhead.

Does Wave’s accounting tool work with my bank?

Unrestricted net assets are any funds your nonprofit has received from donors that have no rules or conditions attached to them, like a pure cash donation. The difference between the balance sheet and the statement of financial position is that, because nonprofits don’t technically have any owners, the statement of financial position doesn’t have any equity on it. Nonprofit-friendly accounting software shouldn’t just allow you to create professional-looking budgets. They should also let you track how your income and spending for the year compare to your budget goals. A good budget can act like a roadmap for a nonprofit, determining where and when the organization will deploy its resources, and whether it’s on the right track financially. Our intuitive software automates the busywork with powerful tools and features designed to help you simplify your financial management and make informed business decisions.

Statement of cash flows

• The platform aids grant management by offering detailed tracking and reporting capabilities, allowing nonprofits to monitor spending, compliance, and performance against specific grant requirements.
• Its versatility shines in its adaptability to the unique requirements of small nonprofit organizations.
• Nonprofit organizations have a tax-exempt status with the Internal Revenue Service (IRS).
• Accrual accounting records income when earned and expenses when incurred regardless of when money changes hands.
• When you can’t reduce an expense, be sure to find ways to describe its impact on the organization’s mission.

To learn more about exactly which taxes your tax-exempt nonprofit might still be on the hook for, consult IRS Publication 557, or better yet, consult with a nonprofit tax specialist. They’ll have experience helping organizations like yours minimize their tax bill and make sure you aren’t breaking any tax code rules. The IRS provides this handy questionnaire to help you figure out exactly which parts of the tax code apply to your organization, and which form you’ll use to apply for tax-exempt status. For the most part, however, cash flow statements for non and for-profits are very similar. If you’ve dealt with for-profit cash flow statements before, this should look very familiar. Restricted net assets are donations that have certain terms and restrictions attached, have special accounting procedures, and must be kept separate from other net assets.

Find the right bookkeeper for your nonprofit

Unfortunately, while Aplos’s nonprofit features stand out, its accounting features are more limited. Only the customized plan includes in-depth income and expense tracking, budgeting by project or fund, asset tracking, and recurring transactions. Nonprofit accounting associations offer resources, training, and support specifically tailored to accounting services for nonprofit organizations the needs of nonprofit organizations. These associations can provide information on best practices, accounting standards, and regulatory compliance for nonprofits. Additionally, you’ll need financial statements to obtain and maintain funding, grants, and other forms of support.

Wave Accounting (Good Free Accounting Software for Nonprofits)

• If your nonprofit is already up and running, it’s not too late to get a good foundation underneath it to avoid trouble with the IRS.
• Its mobile app lets you collaborate on the go, and it integrates with hundreds of third-party apps.
• Without meticulous recordkeeping, NPOs can be subject to audits, fines, or other legal consequences.
• Regular reconciliation catches problems while they’re still small and manageable.
• While human error will always play some role in security breaches, you can be confident in your accounting platform when it comes to keeping your information safe.
• Resources are divided into various funds, each representing a separate entity or activity with its own set of accounts.
• Plan differences revolve around the number of users, customization options, inventory management, automations and expense tracking.

Nonprofits, on the other hand, have different goals than for-profit businesses. We selected QuickBooks Online as the most user-friendly online accounting software for nonprofits on our list, even though it’s not exclusively designed for https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ this sector. Its versatility shines in its adaptability to the unique requirements of small nonprofit organizations. Current versions of QuickBooks must instead be customized to enable nonprofit-specific functionality. For organizations, this requires savvy QuickBooks experts capable of customizing the software to meet their organization’s particular needs. Many NPOs instead look to adopt new nonprofit accounting software solutions that work out of the box.

What are the basic nonprofit bookkeeping tasks?

• Streamlining processes through integration with other platforms can save valuable time and reduce errors.
• Understanding these guidelines will help your nonprofit succeed in its mission, all while ensuring accountability and tax-exempt status through transparent financial reporting.
• National or large non-profits may prefer to hire bookkeepers and accountants.
• Use the tips above to get started, and don’t hesitate to contact an accountant (like our team at Jitasa!) with any questions or to take your systems to the next level.
• We like that users can create a separate financial record for each restricted fund, enabling transparent usage tracking and reporting.

Zoho Books—a simple, affordable, and functional solution for nonprofit organizations and other small businesses alike. Managing money at a nonprofit involves more than just recording income and expenses. Organizations need to ensure that donations are allocated to their intended purpose, that grants are tracked separately from general funds and that financial reports meet the standards of nonprofit auditing bodies.

Create invoices for goods, services, and donations

• An accounting software or service can help you avoid costly mistakes and get a clear picture of your overall finances.
• For example, integrating Xero with tools like Infoodle allows for effective donation tracking, while the Gusto integration streamlines staff payroll processes.
• They’ll also be used throughout the year as a way to compare actual income and expenses versus the projections listed in the budget.
• Assets include cash in bank accounts or savings bonds, while liabilities consist of loans or lines of credit.
• Here, we’ll explain the best accounting software for nonprofits and discuss the top features and functionality, pricing plans, and the pros and cons of each software.

Likewise, regular reporting builds donor trust and often leads to continued support. Your nonprofit accounting system should make it easy to generate standard financial reports and customized impact statements showing donors how their support advances your mission. Your nonprofit accounting practices should include regularly monitoring restricted fund usage, tracking pledge payment schedules, managing matching gift requirements, and documenting compliance with donor terms.

Zeffy is the only 100% free fundraising platform for nonprofits.

In addition to paying employees, office & equipment expenses, and technology costs, nonprofits also need the right processes and procedures in place for audit readiness and mitigating watchdogs. QuickBooks is one of the most well-known accounting options on the market. Whether you use the basic QuickBooks Online or upgrade to the all-in-one QuickBooks Enterprise Nonprofit, you’ll be in good hands. Robust feature set includes thorough record-keeping, comprehensive reporting, excellent invoicing and inventory management, plus a capable mobile app. When estimating your expenses, consider all employee salaries and part-time wages. Estimate the costs of annual fundraisers and charity events your non-profit organizes.

General tools just won’t cut it- You need true fund accounting

We are the most advanced, all-in-one fund accounting platform and financial management suite on the market. Therefore, whether you’re looking for functionality, cost-effectiveness, or an accounting-first approach, QuickBooks Online is going to be one of the best accounting software options for nonprofits. From accounting and month-end close to financial reporting to data visualization, we conduct a variety of services and can customize them to your nonprofit’s specific needs.