Non-profit accounting differs a bit from for-profit businesses since their focus isn't on maximizing profit. Here's a breakdown of the key aspects:

1. Fund Accounting:

  • A core principle in non-profit accounting. It tracks money designated for specific purposes (restricted funds) and unrestricted funds that can be used for various activities.
  • This ensures funds are used as intended by donors and funders.

2. Choosing an Accounting Method:

  • Non-profits can choose cash accounting (recording transactions when cash is exchanged) or accrual accounting (recording transactions when they occur).
  • Accrual is more common as it provides a more accurate picture of the organization's financial health.

3. Financial Statements:

  • Non-profits typically prepare three main statements:
  • Statement of Activities (similar to an income statement): Shows revenue, expenses, and net surplus/deficit.
  • Statement of Net Position (similar to a balance sheet): Shows assets, liabilities, and net assets.
  • Statement of Cash Flows: Shows cash inflows and outflows from operating, investing, and financing activities.

4. Form 990 Filing:

  • Most tax-exempt non-profits must file an annual Form 990 with the IRS. This reports their financial activities and ensures compliance with tax regulations.

Best Practices for Non-Profit Accounting:

  • Maintain strong internal controls to safeguard assets and ensure accurate record-keeping.
  • Regularly reconcile accounts to identify and fix discrepancies.
  • Use accounting software specifically designed for non-profits.
  • Seek professional guidance from a qualified accountant familiar with non-profit accounting.

By following these principles, non-profits can maintain transparent and accountable financial practices, building trust with donors, funders, and the public they serve.