This guide provides a thorough overview of accounting for non-profit organizations. It covers the rules and standards that non-profit organizations must follow to produce accurate financial reports. It also includes sample financial statements and concepts from accounting experts. This article contains a free getting-started guide to help establish a non profit savings account that meets the proper accounting standards. It also covers the different types of non-profits, including educational, charitable, religious, and scientific purposes.

Financial Statements

Non-profits use financial statements to track their economic activities. These statements include a list of assets and liabilities. Assets are the amount of money the organization has, and liabilities are the amount it owes. The assets and liabilities are divided into categories, including current assets, long-term liabilities, and net assets. Net assets are what the non-profit has left after all its liabilities are deducted.

Non-profits need to understand their cash flow to pay bills and expenses. They need to keep track of their cash balance, which they use to make crucial decisions. This report is called the Cash Flow Statement. This statement tells them how much cash they have available and whether or not there is a shortfall. Non-profits can make strategic financial decisions based on their non-profit accounting.

Another type of financial statement is the Statement of Activities. This document categorizes an organization’s revenue and expenses and includes income from program offerings, membership dues, grants, donations, and fundraising efforts. The statement also shows how the organization allocates funds to different functions. For example, a non-profit organization can divide its budget into program revenue, program expenses, and administrative expenses.

Non-profits must also create a Cash Flow Statement. This report is a visual representation of the money the non-profit organization has. It shows how the money moves in the non-profit’s business and allows non-profits to create more accurate budgets.

Statement of Activities

A non-profit’s statement of activities is one of its primary financial statements. It contains detailed information about revenue and expenses. It also includes details about restrictions placed on the use of funds. It also includes a section on net assets. A non-profit seeking to comply with accounting standards should have an organized chart of accounts to minimize errors.

A non-profit’s statement of activities is divided into several categories, including revenue and expenses, net assets, and unrestricted revenue. Most revenue for a non-profit comes from memberships and other donations. Payment should be recorded as either gross or net. Other sources of income, such as investment returns, should be recorded as a net. Non-profits also need to register cash contributions in the statement of activities.

Non-profits receive several types of funding, including grants, unrestricted funds, and restricted funds. A non-profit’s Statement of Activities will show changes in the organization’s net assets over time. The Statement of Activities is the non-profit equivalent of a for-profit income statement. Its goal is to give non-profits a better idea of how well their programs work.

While non-profits do not aim to profit, they must generate more revenue than they spend. Their income and expenses should balance each other over time. Using a non-profit income statement will allow non-profits to determine whether or not they need to raise additional funds or trim costs.

Chart of Accounts

A chart of accounts is a basic framework that helps non-profits understand their finances. It includes categories like assets, liabilities, net assets, revenue, and deferred revenue. Non-profits may need additional layers to track different sources of income and expenses. For instance, some non-profits may need to separate accounts for the funding that comes from projects, grants, and special events.

Your non-profit’s chart of accounts should be organized based on the program you’re using. The chart should leave plenty of space between categories and subcategories. This makes it possible to add new categories as needed. For example, a non-profit might need to separate accounts for employee wages and benefits and postage for appeals and correspondence. Similarly, they might need a detailed overview of the accounts to understand what taxes need to be paid and to what amount. Keep in mind however that non-profits are exempt from many taxes, with charity VAT relief in place in the UK, for example. 

A non-profit’s chart of accounts is crucial for keeping its financials accurate and up-to-date. Non-profits should avoid drastic changes in their chart of accounts as this can cause their data to be more challenging to interpret. Alternatively, they can delete accounts to keep their chart of accounts neat and organized. This can help non-profits generate accurate reports faster.

A non-profit’s chart of accounts should include net assets and net liabilities. In a non-profit’s chart of accounts, net assets are the difference between the total value of its assets and liabilities. In addition, net assets represent historical earnings and are the first two accounts on the income statement. A non-profit’s income statement should also contain its fixed assets.