Guide to Grant Accounting for Nonprofit Organizations

For more information about how to create a budget, check out the National Council of Nonprofits guide to Budgeting for Nonprofits. If the value of the donation is small (below $5,000) the IRS will let you determine a donation’s fair market value yourself, usually based how much comparable goods and services are selling on the market. If the value https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ of the donation is over $5,000, you should get the donation formally appraised by an expert. Nonprofits have tight rules around what they can and can’t spend money on.

Board Communication and Oversight

For conditional grants, revenue recognition hinges on meeting the specific conditions outlined. Non-profits record these as deferred revenue on the balance sheet until conditions are satisfied. Unconditional Contributions are recognized immediately as revenue, reflecting the organization’s unconditional right to use the funds upon receipt without the need to perform additional services or activities. Specific Stipulations and Multi-Year GrantsWhen grants come with specific spending stipulations, it is imperative for the non-profit to monitor these restrictions closely.

• Note revenue and expenses in your accounting software, just as you would if you ran a for-profit business.
• NFF puts the information provided from a survey into a financial model that forecasts the savings needed to fund the replacement schedule of specific systems and equipment.
• For the most part, nonprofits can apply to the IRS to become exempt from federal taxes under Section 501.
• All nonprofits can advocate for measures that will affect their mission or the health and well-being of their clients.
• The past record may include areas of interest, geographic locations, dollar amount of funding or kinds of organizations supported.
• Classifications for contributions; donors may set limits on how their gift can be used, or they might allow the nonprofit to use the funds however they wish.

Statement of cash flow

Nonprofits must follow Generally Accepted Accounting Principles (GAAP), established by the Financial Accounting Standards Board (FASB), to prepare accurate and consistent financial statements. This allows donors, board members, and other stakeholders to assess the organization’s performance and financial stability. Functional expenses refer to the allocation of costs among different organizational activities. These include program services, management and general, and fundraising expenses. A clear understanding of functional expenses is crucial for both internal decision-making and external reporting to stakeholders and donors. The operating budget is a financial plan that outlines the expected revenues and expenses for an organization during a specific period, typically a fiscal year.

• The amount owed to the organization for services or merchandise provided to others.
• These statements are prepared in accordance with the Generally Accepted Accounting Principles (GAAP) and are governed by the Financial Accounting Standards Board (FASB).
• It includes all program costs, which are the direct expenses incurred in carrying out the organization’s mission, as well as general administrative expenses and fundraising costs.
• For example, when a nonprofit buys equipment or property, these assets are managed differently than in a business setting.

Nonprofit budget

By understanding the basics of nonprofit accounting, your team will be better equipped to fund its mission and make strategic decisions about your organization’s future. 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. Effective nonprofit financial management also involves duties related to strategy and oversight. These areas are typically covered by your organization’s chief financial officer (CFO) and treasurer, respectively.

• Often used to track amounts that can be advanced by a lender to a borrower under a construction loan and helpful to ensure that there are sufficient funds remaining to complete and pay for the contract.
• One major difference between the statement of activities and the income statement is that instead of calculating net “profit,” the statement of activities calculates changes in net assets.
• A Charitable Lead Trust (CLT) pays the trust income to a charity first for a specified period, with the principal reverting to the donor or going to other person(s) at the end of the period.
• As a nonprofit, there are no tax consequences to receiving a grant, if it is provided to further its mission.
• Most costs and expenses related to government grants are easily determinable and recognized over a number of periods.
• For multi-year grants, it’s essential to recognize the grant income over the periods to which it pertains.
• The statement of functional expense is especially helpful when it comes time to file your nonprofit’s annual Form 990, which we’ll cover later on.

These categories are used for reporting on audits (in the Statement of Functional Expenses) and IRS 990 (in addition to program expenses). By nature, overhead expenses cannot be clearly attributed to a specific program. Some components of overhead (often staff expenses) can be allocated to different programs, but this is often imperfect, imprecise, and arbitrary.