Nonprofit Bookkeeping Fundamentals
Understanding the fundamental components and definitions behind our work with your organization's books
Nov 8, 2023 •
Givefront Staff
Clean, consistent bookkeeping is essential to the success of any nonprofit organization. It ensures that financial resources are managed effectively, enabling your organization to fulfill its mission and serve its community. Without a solid bookkeeping system, nonprofits can quickly find themselves in financial disarray, making it difficult to track donations, manage expenses, and comply with regulatory requirements. At Givefront, we’re here to help you balance your books so you can focus on what matters most, your mission.
In this post, we will go over the foundational components of any bookkeeping system. These include maintaining records of changes in assets, liabilities, and net assets. By mastering these basics, you can help ensure that your financial practices support your overall goals and promote transparency and accountability.
Assets — Building a Strong Foundation
Assets encompass all items of value owned by your organization. They provide a clear picture of your organization’s resources. By knowing what assets you possess, your organization can better manage and allocate these resources to support your mission and operational needs. For a not-for-profit entity, examples of assets may include:
Cash & Investments
Vehicles
Buildings
Land
Equipment & Tools
Office Furniture
Accounts Receivable (funds owed to the organization)
Prepaid Expenses
Tracking assets accurately is essential for financial planning and reporting. Nonprofits need to maintain detailed records of their assets to ensure compliance with accounting standards and regulatory requirements. Not only does this level of transparency satisfy legal obligations, but it also builds trust with donors, grant-makers, and other stakeholders who expect accountability and responsible stewardship of resources.
Staying consistent with tracking assets can be complicated and tedious. At Givefront we can help you maximize your resources to ensure that your organization is well-equipped to fulfill its mission, maintain financial health, and demonstrate accountability to stakeholders.
Liabilities — Managing Obligations
Liabilities refer to the obligations or debts that an organization owes. Understanding your organizations liabilities helps provide insight into the financial commitments that your organization has made. Examples of liabilities include:
Loans/Notes Payable
Vehicle Loans
Equipment Loans
Managing liabilities effectively is essential for maintaining financial stability. Excessive debt can strain a nonprofit’s resources, making it difficult to invest in programs and services. Knowing the extent and nature of these obligations will help your organization plan for the future and ensure that you can meet their financial responsibilities without jeopardizing their operations or mission. Our Givefront accountants work directly with your organization to optimize your liabilities to plan for the longevity of your organization.
Additionally, transparency in reporting liabilities is crucial for maintaining trust with donors, grant-makers, and other stakeholders. Financial statements that accurately reflect an organization’s liabilities provide a true picture of its financial health. This transparency helps build confidence among supporters and can enhance the organization’s credibility and reputation. At Givefront, we help our clients reach maximum transparency by working towards a Candid Transparency seal and using GAAP accounting standards.
Net Assets
Net assets represent the equity accumulated by your organization. This is determined by subtracting total expenses from total revenue annually and is tracked cumulatively from your organization’s inception. For nonprofits, understanding net assets is crucial because they provide a clear picture of your organization’s financial health. By keeping track of net assets, nonprofits can assess whether they are operating sustainably and have the financial resources to continue their mission in the long term.
Net assets are categorized into three types:
Unrestricted
Funds available for general use. Your organization can use these for any expenditure.
Unrestricted
Funds restricted temporarily by donors for a specific project, purpose, or time period
Unrestricted
Funds restricted in perpetuity, generally endowments, and are not to be spent on general initiatives
Each of these categories indicate how much of your funds are available for general use, how much are earmarked for specific projects or purposes, and how much must be maintained in perpetuity. This distinction is key for financial planning and ensuring compliance with donor restrictions and grant requirements. At Givefront, our expert advisors will work with you to keep track of your net assets, plan for the future, and ensure you meet compliance requirements.
Managing and accurately tracking your organization’s assets, liabilities, and net assets enhances your organization's work to promote its mission by ensuring its longevity and leveraging your resources. With our full-service accounting specifically tailored to nonprofits, Givefront is here to help your nonprofit balance its books, allowing you to focus on your mission, instead of getting bogged down in the numbers. Our accountants work hard to ensure the longevity and success of your organization, ultimately saving you time and money.
