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Top 7 Accounting Basics for Nonprofits


For a nonprofit organization to thrive, it is necessary to keep a close account of all transactions. This is necessary not just to ensure that all transactions are safe and secure but also to keep track of the organization’s daily activities. Usually, in nonprofits, there are employees, volunteers, and individuals dependent on the organization’s efforts. Hence, all financial activities must be accounted for to prevent any fraud.

Some of the accounting basics that all nonprofits should follow to help you find the best accounting software for your organization:

1. You should have good internal policies in place.

A nonprofit organization must have a proper accounting system with internal policies and guidelines in place. There cannot be any ownership for a nonprofit organization, which means there will not be any ownership interest. This should be reflected in the accounting system, followed by the organization. It would help if you implemented a policy that should clearly define the ownership details. The nonprofit organization’s internal policies should clearly define the financial capabilities and duties of the donors, board of directors, and employees.

2. You should have different roles for different people.

Although this is not strictly a part of accounting, yet when you start using nonprofit accounting software, it is essential that you first clearly define the roles of the individual members of your organization. You will have to define the financial roles carried out by the employees of your company. This will automate the process of incorporating the daily financial details into the system. This will remove the chances of human error and make it easier for you to keep account of your organization’s daily financial activities

3. You should use software developed explicitly for nonprofit organizations.

When you have a nonprofit accounting software, you must use a solution that has been developed exclusively for such organizations. It should be developed keeping in mind the Generally Accepted Accounting Principles or GAAP guidelines but should be customized as per the requirements of nonprofit organization. The taxation guidelines for nonprofit organizations are different from that of a formal business organization. Hence, you must use a system that has been developed exclusively for nonprofit organizations.

4. You should select a software-based system that offers scalability.

Even if your accounting procedures for nonprofit organizations are standardized, yet as your organization grows, you will have to incorporate changes in the system. This is necessary to support the changes that have been brought in your organization. Hence, the system that you install should offer scalability. Moreover, this is necessary to keep the operational expenses within the accepted limit. Otherwise, if you have to change the system completely, you will have to bear significant expenses. Therefore, you should opt for a system that offers excellent scalability options.

5. You have to consider the tax laws.

If you check a Guide to Nonprofit Accounting software, you will find that it tells you to keep track of the tax laws. Although you will be using a system that follows the GAAP guidelines, it is sometimes necessary to keep track of the individual and specific tax laws. Sometimes the tax laws are changed, which is applicable for nonprofit organizations for other business organizations. Hence, when you use a software-based system to keep track of your nonprofit organization’s accounting and financial transactions, you must consider the applicable tax laws. Based on these, you should use a system, which is updated and uses the latest tax laws.

6. You have to plan for all the expenses.

When you use an accounting software for organization, you must take into account certain unforeseen expenditures. These should feature in the accounting system that you use. Your accounting system should reflect only the daily expenses and any unforeseen expenditures and how you expect to meet these. It should also account for any taxation if the expenditures are coming from a taxable fund. Hence, it would help if you planned for all expenses, and these should be reflected in the system you use.

7. It would help if you had strong communication between all departments.

When you use an accounting software for small business, it should not just be a method to keep track of finances, but also a database and a system to keep up the communication between all your departments. It should be a complete management solution that should help all departments of your nonprofit organization work together and share information. In other words, if necessary, the system can also work as a common platform.

Software-based Accounting system is the best solution for nonprofit organizations


Thus, for a nonprofit organization to become successful, it is necessary to ensure that all financial transactions are accounted for and incorporated into an online accounting system. This will prevent any fraud from occurring and help you gain a better perspective on your organization’s financial activities. Finally, it will also help make it a recognized institution in the long run.

Author Bio:

Punita Shukla is a passionate digital marketer. With her forte in IoT, Accounting, and finances. She can simplify complex Accounting Software solutions for small and medium-sized businesses. When not in front of the screen, she is either camping or trekking.

Also Check: The Power of Data Analytics for Non-Profits

Infographic created by Sylogist, a fund accounting software company

I am Lucia by profession a blogger, tech geek and much interested in exploring digital world and new technology. I am also a mother, wife. I really loving fashion things and travelling.


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