Did you know there are nearly 1.5 million nonprofits in the US?
If you’re looking to start your own nonprofit, it’s vital that you brush up on your accounting skills.
After all, the way you handle the accounts of a nonprofit is different from the way you’d handle the accounts of a normal business. Get things wrong, and you might get into some trouble with the IRS.
This post will provide you with a basic introduction to nonprofit accounting. If you want your nonprofit to stay on the right side of the IRS, these tips should be able to help. Read on to learn more.
Learn Basic Accounting Terms
If you want to do a good job when managing your accounts, you need to learn about the accounting terms associated with nonprofit accounting, including:
- Assets
- Liabilities
- Net Assets
- Statement of Financial Position
- Fund Accounting
It’s relatively easy to learn what these terms mean, as they’re often associated with the general world of accounting. Following this, you should be able to find plenty of books and articles that walk you through each of the concepts mentioned above.
Understand How Nonprofits Generate Revenue
You need to understand the different ways that a nonprofit can generate revenue. In doing so, you’ll then be able to keep better records, and this will allow you to avoid any mistakes during tax time.
For most nonprofits, revenue is generated via:
- Donations
- Ticket Sales
- Grants
- Service Fees
- Memberships
- External Investment
For the most part, you should be able to place incoming funds into one of those categories. That said, if you’re having some trouble, you might want to review how each category is defined.
Reach Out to an Expert
If you struggle with accounting tasks, you might want to work with an expert that does accounting for nonprofits.
A professional accountant will ensure that you don’t break any of the rules associated with running a nonprofit.
They’ll be able to provide some guidance in regards to how you can make your accounts ‘compliant’ with IRS rules.
A professional accountant will also be able to provide you with reports that give you an overview of your financial situation. You can then use these reports to make decisions in regards to how you should spend money.
Do You Understand Nonprofit Accounting?
If you want your nonprofit to succeed, you need to understand the basics of nonprofit accounting.
Now, you can brush up on your accounting skills by reading up on the topic and by taking a few courses. But if you want to take a hands-off approach, there’s also the option of hiring an accountant.
Ideally, you want to go for both of these options.
In doing so, you’ll be able to verify the work of your accountant. On top of that, you’ll also be able to answer questions associated with the financial situation of your nonprofit.
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