Keeping the Books Up-To-Date
June 16, 2016 Lynette Garet Business Basics 0 Comment
Nonprofit accounting: Keeping current
Accurate records and reporting depend on capturing financial transactions in a timely and standardized manner. Government and private foundation grantors, as well as your donors, want to know if you are solvent and how you spend their money. In addition, the complexities of nonprofit accounting—restricted funds, donor records, grants—require more than a shoebox full of receipts and a Microsoft Excel spreadsheet. You’ll need a full-fledged accounting system.
Cash vs. Accrual
The first decision is whether your accounting is on a cash or accrual basis. Cash-based accounting is a bit like running a giant checkbook. Money received is added and money paid is subtracted. It’s simple arithmetic to keep the books up-to-date and, for small nonprofits with few staff members, it’s a very inexpensive system.
However, cash-basis accounting has its drawbacks. For one, you have to remember what bills are outstanding as well as figure out if, and when, you’ll have the money to pay your expenses. For another, your protection against employee theft and fraud is minimal. Finally, most grantors and the Internal Revenue Service will want to see accrual basis financial statements.
Accrual accounting records revenue and expenses at the time your nonprofit earns or incurs them, even if you haven’t yet received or disbursed the funds. Although a more complicated system, the standardization of accrual accounting allows revenue and expense matching by the appropriate period. All incorporated entities must use an accrual accounting system. The Financial Accounting Standards Board, the primary authority for nonprofit financial accounting standards, adheres to and interprets the Generally Accepted Accounting Principles (GAAP) as they apply to nonprofits.
While accrual accounting gives a more accurate picture of your nonprofits stability and sustainability, it is more complicated to use. It also requires at least some grasp of accounting minutiae. Some small nonprofits use cash-basis accounting for day-to-day operations and hire an external CPA to covert the records to the accrual method for reporting purposes.
As mentioned earlier, an Excel spreadsheet—however sophisticated, is not going to meet your needs adequately. It’s too easy to erase or duplicate entries, inadvertently or not. Choosing the right accounting software depends on several considerations:
Do you want it to integrate with existing software; especially CRM systems?
Do you want detailed donor records?
In addition to a general ledger system, do you need accounts payable, receivable, payroll, inventory systems?
Do you need a report-writer feature?
The answers will depend on the scope and complexity of your nonprofit, including staffing levels. Take advice from a CPA or financial expert who specializes in nonprofits, then start considering your options.
Advice/software reviews are available from:
Accounting software packages
Sage One—cloud-based system with invoicing, project and task management features
Quick Books—includes a chart of accounts
Quick Books Online—cloud-based but susceptible to connectivity issues
Sage 50 (formerly Peachtree)—specifically designed for operations with fewer than 50 employees, offers customizable set-up
Abila MIP Fund Accounting (formerly Sage MIP/Sage 100 Fund Accounting)—tracks restricted funds and includes report-writer feature
The Financial Edge (Blackbaud)—integrates with Blackbaud’s Raiser’s Edge
FinancicalForce Accounting—cloud-based, features SalesForce CRM platform integration
Microsoft Dynamics SL, GP and NAV editions—
Dynamics SL (formerly Solomon)—flexible, designed for project- or service-based NPOs
Dynamics GP (formerly Great Plains)—widely-used standard accounting package
Dynamics NAV (formerly Navison)—fully customizable to allow for complex operations
Sage 100 ERP (formerly Sage ERP MAS 90 and 200)—emphasizes manufacturers, order entry and goods tracking
The initial time and expense of buying and implementing an accounting software package may seem daunting. However, an effective program will assist your nonprofit’s donor and resource management, as well as future planning.