Accounting Best Practices For Nonprofit Organizations


The most efficient and cohesive accounting departments use accounting best practices to maximize team skills and minimize grunt work. These practices help businesses boost their productivity by reducing the time it takes to process checks, invoices, and reimbursement requests. The time management benefits of a business that processes requests for reimbursement during certain times of the month are particularly attractive. Here are a few of these practices. If you’re wondering which ones to follow, check out our list of 10 nonprofit accounting best practices.

10 nonprofit accounting best practices

Nonprofit organizations should always ensure the accuracy of financial reports. They should provide monthly financial reports to the board of directors and review budget-to-actual reports. They should also review key performance indicators. Nonprofits should have management staff understand the financial statements they produce. In doing so, they can fulfill their fiduciary duties to the organization. Here are 10 nonprofit accounting best practices:

Compile an annual operating budget. Include donated time and materials. When calculating expenses, make sure to set realistic expectations. While donors want more money to go towards the mission, nonprofits need to pay employees, invest in marketing, and take care of other necessary items. Nonprofits must be aware of the GAAP (Generally Accepted Accounting Principles) and IRS requirements for nonprofit accounting. Make sure you understand what GAAP requirements are before creating your annual report.


nonprofitCreate a budget before you start a fundraising campaign or other project. Set financial goals and include realistic expenses and income sources. QuickBooks is a popular accounting software for nonprofits. It offers discounted pricing and can help with bookkeeping, invoicing, and tracking donations. You can also use Quickbooks to create automatic reports and stay compliant with the IRS. QuickBooks is also easy to use and can help nonprofits stay compliant. However, it’s not a good choice if you’re not an accountant.

Developing a budget at the beginning of the year

When planning for the business year, it is important to develop a budget. This document should be based on the assumptions that will determine the company’s financial performance over the coming year. The company’s budget will determine how well each department is supporting the strategic plan. To accomplish these goals, the company must compute the amount of manufacturing and sales resources needed to reach the forecasted sales and profits. The budget also shows the company where money is going to be spent and where it is not going.


The process of developing a budget is an important step in keeping the organization in good financial condition. It is the basis of other financial documents, such as the balance sheet. A detailed budget will enable the organization to make operational decisions and determine the amount of leverage it should use to finance its objectives. A budget is a must for any business, and the ability to develop one is essential to being a leader in the business.

Limiting accounts receivable

In order to keep your cash flow steady, you must limit accounts receivable. Accounting best practices for accounts receivable can help you avoid collections problems and keep your books clean. Here are some suggestions to limit your accounts receivable:

Establish a collection process: A sound collection program will help you collect payments as quickly as possible. In addition to reducing your bad debt risk, early payments from customers can be used to replenish stock or settle trade payables. Furthermore, limiting accounts receivable is necessary for cash flow because failing to collect on time chokes your available cash flow. When it comes to reducing your A/R, you must consider your profit margins. A business that has a healthy profit margin can afford to extend credit to most of its customers.

Another way to reduce your accounts receivable is to offer discounts to customers who pay early. You can offer a discount for early payments or impose penalties for late payments. Remember, having organized invoices is essential to knowing how much money you owe and when your customers are due to pay. Without adequate AR management, your company could face cash-flow problems. That’s why you must use accounting best practices to limit your accounts receivable.

Using subaccounts to track cash transactions

Using subaccounts to track your cash transactions is an important aspect of your accounting system. These sub-accounts can be as simple as a check-mark, or they can be as detailed as a Cost Center. They allow you to see where the money is coming from and how much it has spent in each account. For the purpose of this article, I’ll be discussing the different types of sub-accounts, so you can see how they can help you run a more effective accounting system.

First, we need to understand the function of each account. In accounting, debits increase an account, and credits decrease it. The best practice is to group revenue into broad functional categories. Typically, three or four functional categories are sufficient for small businesses, but you may need a higher level of detail for larger entities. This is where the sales and cash receipts journal comes in. You may want to keep these separate for easier recordkeeping.

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