Nonprofit Accounting Methods

It is critical that nonprofit directors and executives develop at least basic skills in financial management. Expecting others in the organization to manage finances is clearly asking for trouble. Basic abilities in financial management begin in the critical areas of cash management and bookkeeping, which should be done according to certain financial controls to ensure reliability in the bookkeeping process. Nonprofit administrators should learn how to generate financial statements and to analyze those statements to really understand the financial state of the nonprofit organization. Financial analysis shows the reality of the situation of a business- seen as such, financial management is one of the most important practices in management.
Diligent financial management of nonprofit organizations involves the use of financial statements as a management tool; the elements of an accounting system and identification of its best use; basic methods of internal controls and preparation for a third party audit; the budget cycle and annual filings. These aspects are indispensable to an organization’s finance and audit committee of the Board of Directors, and are essential in the oversight of the organization’s financial soundness.
Because each nonprofit organization faces different fiscal issues and has different resources to bring to pecuniary functions, each organization will choose a different set of regular financial reports to prepare and analyze. At different times an organization will need different reports to provide information to support its decision making. The required reports will depend on several things, including the extent to which the organization is financially stable, the degree and extent to which the financial outlook changes during the period, the availability of resources to meet financial obligations, the availability of staff or other professionals to prepare reports, etc.
Common Monthly reports include:
• Statement of Position (Balance Sheet)
• Statement of Activities (consolidated) showing budget to actual information
• Departmental Income and Expense Statement showing budget to actual information
• Narrative report including tax and financial highlights, important grants received, recommendations for short term loans, or other means of managing cash flow
Common Quarterly reports include:
• Fundraising Reports; actuals vs. projections for donations; status report on all foundation proposals.
• Cash flow projections for the next six months
• Payroll tax reports
• Fee for service report showing number of fee-paying clients and revenue against projections.
Common Annual Reports include:
• Annual Federal forms, including 990 and Schedule A; State Reports
• Draft financial statements for year: Statement of Activities; Statement of Position; Income Statement for each program.
• Audited financial statements for the entire organization, including Statement of Position, Statement of Activities, Statement of Cash Flows, Statement of Functional Expenses
• Management letter from the auditor
In a small startup nonprofit, the board treasurer or outside accountant/bookkeeper might prepare the financial information for all in-house financial statements, and work with the executive director to prepare the narrative with financial highlights to be presented to the board. A controller or finance director would prepare these reports in a larger organization. The program director, if you have one, would ordinarily prepare the quarterly fee-for-service report. Similarly, the director of development would prepare the quarterly fundraising report.
The executive director should review all reports prior to presenting them to board members to ensure that the information makes sense and can be translated into issues and opportunities facing the organization. When the board is large enough to include a finance committee, that committee reviews all financial statements and reports on financial activity to the full board. In a smaller nonprofit, the executive director might report first to the board treasurer, who can then keep the full board apprised of the organization s financial status.
The full board may be better able to respond to comprehensive information with important financial trends and issues highlighted in an accompanying narrative report. While each board member should have the opportunity to review organization-wide income and expense reports to understand the impact their department's activities have on the whole organization, members who are inexperienced at reading financial statements may get lost in overly detailed statements. Thus, the finance committee will often review the numbers in greater detail than the full board.

Article Source: http://myarticlezine.com

CharityNet USA’s mission is to serve as a “one-stop” resource center for churches and charities nationwide. As the nation’s number one provider of nonprofit services, CharityNet USA offers assistance in all aspects of establishing, operating, and sustaining a religious or community-based nonprofit. In addition to the diverse products CharityNet USA makes available, the organization also provides charities and churches with free tools and links to free resources for nonprofit organizations. For more information on CharityNet USA please visit www.charitynetusa.com.

Please Rate this Article

5 out of 54 out of 53 out of 52 out of 51 out of 5 

Not yet Rated