Getting Started with Nonprofit Accounting & Bookkeeping
All organizations, regardless of whether they are businesses or non-profits, have a capital structure. It’s essential that anyone running a non-profit organization has a thorough understanding of how its capital should get structured and a financial plan of action.
From an accounting point of view, nonprofit organizations in New York must know the difference between what separates them from “for-profit” businesses. The following is a practical resource for those starting out with nonprofit accounting advisory and bookkeeping.
The Mechanics of Non-Profit Accounting & Bookkeeping
While accounting for nonprofit organizations includes many of the usual business accounting practices, there is also some specialized accounting that needs to get taken into consideration. They include:
Budgeting. Nonprofit organizations need to create a budget that allows for the distribution of working capital, and adjustments for factors such as inflation. Estimated budgets are also a necessity to help keep nonprofits financially functional for the following year.
Revenue. All income must be tracked, especially for the exchange of goods and services, and contributions. Other examples of income that should be monitored include donated money and goods. With the latter, you must also determine each item’s value. It’s also vital to perform revenue stream evaluations and projects.
Tax exemption. As you can imagine, it’s in the best interests of a nonprofit organization to keep taxes to a minimum. With that in mind, nonprofits should prepare the right IRS documentation, including Form 1023 – application to operate under section 501(c). It also goes without saying that nonprofits should determine that their structure and operations are just for tax-exempt purposes.
When it comes to funds, nonprofit organizations must find out which of their money is unrestricted or restricted from a tax exemption point of view. Once that’s all done, they can then submit a 990-tax return.
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Why Accounting Accuracy Is So Important
Although it’s important for a standard business to ensure their accounting is correct and up-to-date, nonprofit organizations can sometimes come under closer scrutiny for tax purposes.
For that reason, nonprofits need to ensure that all their expenses are properly documented AND fall within the limits of their charter. They must also record any activities that have generated a profit and declare this information to the IRS.
Many nonprofit organizations also obtain grants as a source of funding. Because of that fact, they will need to provide proof of what they have been doing with the money. That means they must report all their expenses once the grant period has been concluded.
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How We Help Non-Profit Organizations
At MBS ATA our dedicated and experienced bookkeepers are fully-versed in bookkeeping for nonprofit organizations in the state of New York and across the country.
This year’s amendments to the New York’s Not-for-Profit Corporation Law are coming into effect on June 30, 2017. MBS ATA helps to ensure nonprofit organizations financial statement filing and governance requirements are met in light of the new rules.
With the know-how to track ratios for breaking down program and administrative expenses, MBS ATA ensures that your non-profit organization’s chart of accounts gets set up to make the preparation of 990 or 1042-S filings for your CPA simple and straightforward.
MBS ATA works with you and your CPA to ensure your annual audit runs smoothly by providing pre-audit review and preparation. We even offer discounted rates for nonprofit accounting and bookkeeping, so contact us today for a consultation to find out how we can help you.
Images from: Katt Yukawa