Fund Accounting for Nonprofits & Charities

In some cases, a nonprofit may approach the donor to discuss altering the terms, especially if the original purpose is no longer feasible or relevant. Schedule a live FastFund Demo now and discover the path to streamlined, stress-free accounting. Take the first step towards empowering your organization with the right tools for success.

  1. This statement is designed to show organizations how they’re allocating their resources and how their use of funding helps advance the organization’s core initiatives.
  2. When you reconcile your bank accounts, all you’re doing is comparing each transaction from your bank statement with the ones you have in your books.
  3. Are you navigating the complexities of fund accounting in QuickBooks and finding it challenging to track restricted funds accurately?
  4. As you can see in the following image, the net assets section further breaks down the funding into assets with donor restrictions, those without, and the total for the organization.

For example, donors can specify their intention through an agreement with the nonprofit. This doesn’t mean restricted funds are always a major challenge or hassle for your organization! It’s important to recognize the value they can bring to your organization as well as how to react to these challenges so that you can effectively manage your nonprofit’s financial resources. Your nonprofit’s statement of financial position is used to help your organization determine its liquidity and represent your financial health. The statement shows the organization’s assets, liabilities, and resulting net assets.

A Guide to Nonprofit Accounting (for Non-Accountants)

Unfortunately, there remains some confusion over the new FASB 958 nonprofit accounting standards — especially when nonprofits receive contribution that comes with conditions or restrictions. Under FASB new nonprofit accounting standards, conditional gifts affect when the transaction can be recognized as revenue or an expense by the recipient (i.e., the nonprofit) and the provider (i.e., the donor). Take for example, the Northeast Louisiana Arts Council (NLAC), nonprofit restricted funds accounting dedicated to enriching their local community through art education and events. NLAC has been growing steadily, thanks to the support of local artists, community members, and some generous donors. Best practices in fund accounting include consolidating funds for similar programs and activities to simplify financial management and reporting. It’s also important to avoid creating separate cash accounts for each fund, as this can lead to unnecessary complexity.

Challenges and Opportunities of Restricted Funds

In order to record the expenses that use funds from a grant, you’ll need to create an expense category specific for cash and cash equivalents. This means that restricted funds that are allocated toward real needs at your organization can make a big difference and cover a large portion of your budget. This requires you to work closely with your supporters and collaborate to find a cause or program at your organization that both sparks their interest and satisfies your needs.

A less-expensive option to true fund accounting software is to use QuickBooks and create a class for each fund. You can print your financial statements separated by class, which mimics fund accounting. Very small organizations might have a single unrestricted fund, so fund accounting is pretty simple as all net assets of the organization belong in the single fund. These organizations can typically use inexpensive accounting software designed for for-profit organizations without any special modifications. To illustrate how each fund has its own set of financial statements, here is a sample balance sheet and statement of activities separated by fund for a hypothetical nonprofit. Externally issued financial statements generally will only show the amounts in the total column, but note that even the total column separates the “net assets” section of the balance sheet by fund (yellow highlights).

Understanding Restricted vs. Unrestricted Funds in Nonprofit Accounting

We understand the importance of accurate fund management in your mission-driven work. That’s why we’re excited to offer you a unique opportunity to see FastFund in action. Experience firsthand how our solution can transform your accounting tasks and free you from the constraints of inadequate tools. Get our FREE guide to nonprofit financial reports, featuring illustrations, annotations, and insights to help you better understand your organization's finances.

Temporarily Restricted Net Assets vs. Deferred Revenue

If you have multiple endowments, grants or restricted large-dollar donations, it is recommended that you track them each in their own fund. Some organizations choose to track these funds outside of their official accounting structure (like in a spreadsheet), but setting up individual funds can help you establish transparency and accountability. If you’re a very small nonprofit, it’s possible you won’t have any restrictions on your donations. But once you start getting larger donations or grants, fund accounting quickly becomes a necessity.

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