What is Non Profit Accounting?

  • Finance

Non-profit accounting tracks how organizations use donated funds and grants rather than focusing on profit generation. The main difference lies in fund accounting, where money gets categorized into specific funds based on donor restrictions or organizational purposes. For example, a charity might separate general operating funds from restricted scholarship money.

Non-profits create three primary statements: the Statement of Financial Position, Statement of Activities, and Statement of Cash Flows. These documents help donors, board members, and regulatory agencies understand resource management.

Net assets get classified as either “with donor restrictions” or “without donor restrictions.” Restricted funds might require specific usage like building maintenance or program delivery. Organizations must track these separately and report how they spend restricted money according to donor wishes.

Most non-profits file Form 990 annually with the IRS, which becomes public record. Organizations with revenues exceeding $750,000 typically need independent audits. State registration requirements vary, but many states require annual financial reporting for organizations soliciting donations within their borders.

Proper non-profit accounting builds trust with stakeholders and ensures legal compliance while maximizing mission impact