All organizations, regardless of whether they are businesses or not-for-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, not-for-profit 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 bookkeeping.
The Mechanics of Accounting for Non-Profits
While accounting for non-profit 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. Non-profit 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 non-profits 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 non-profit organization to keep taxes to a minimum. With that in mind, non-profits should prepare the right IRS documentation, including Form 1023 - application to operate under section 501(c). It also goes without saying that non-profits should determine that their structure and operations are just for tax-exempt purposes.
When it comes to funds, non-profit 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.
Why Accounting Accuracy Is So Important
Although it’s important for a standard business to ensure their accounting is correct and up-to-date, non-profit organizations can sometimes come under closer scrutiny for tax purposes.
For that reason, non-profits 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 non-profit 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.
How We Help Non-Profit Organizations
At MBS ATA our dedicated and experienced bookkeepers are fully-versed in bookkeeping for non-profit 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 non-profit 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 also works with you and your CPA to ensure your annual audit runs smoothly. Plus, we offer discounted rates for non-profit accounting! So, regardless of whether you are an experienced Executive Director or a startup NYC non-profit organization, contact us today for a consultation to find out how we can help you.