If you’ve started an organization with a purpose to help the general public, it qualifies as a non-profit corporation. Common examples of non-profit organizations include schools, political organizations, labor organizations, chamber of commerce, charities, social welfare organizations, and homeowner associations. Your organization would also qualify as a non-profit entity if it was created to promote education, literature, science, gender equality, or human rights.
The accounting processes for such entities largely differ from conventional corporations. However, even a non-profit organization needs to cater to overhead expenses and employee salaries. The good news is that QuickBooks is a great option!
Let’s study the subject matter in detail:
How Is Non-Profit Accounting Different?
One of the biggest differences between a for-profit and non-profit organization is that of ownership. Anyone can own the shares of a for-profit company, as long as it’s listed on the stock exchange. For the company, the total value of the outstanding shares is known as shareholder’s equity. These owners then receive timely disbursements and dividends from the company’s profits. The share price is used as a reliable metric to judge the company’s performance in the marketplace.
This is not the case with a non-profit organization. No one owns non-profit entities. Even if you have found the company or are a part of the board of directors, you don’t own it. Such companies are a public trust, and therefore, there’s no concept of shareholder’s equity or retained earnings.
As far as the expenses and revenue are concerned, for-profit companies relate them to the sale of products and services. These are recorded in a general ledger, a self-balancing account representing the activity of a single business entity. On the other hand, a non-profit company doesn’t have products or services to sell. Therefore, you can’t track the revenues or expenses through a single general ledger or an ordinary chart of accounts.
Most of the revenue of a non-profit comes from donations, funds, and grants. When individuals donate funds, they usually allocate them for a specific purpose. Any grant authorized for a child’s education program can’t be used to buy air conditioners for the office. This is why non-profit accounting comprises a series of general ledgers. Each fund is budgeted and accounted for differently. This is to make sure that each grant is used only for its permitted purposes.
The financial reporting system for the two types of businesses is also different. For-profit companies maintain three main types of financial statements:
- A balance sheet to reflect the assets owned by the company and the liabilities owed by the company.
- A profit and loss account to calculate the bottom line.
- A cash flow statement to track cash generated from operating, investing, and financing activities.
On the other hand, a non-profit organization mainly relies on a balance sheet that reflects assets that can be used to keep up with its mission. Instead of tracking net income, non-profits track excess of revenue over expenditure.
QuickBooks For Non-Profit Accounting
Here’s some good news for QuickBooks Desktop users. You can speak to your QuickBooks hosting provider to upgrade to QuickBooks® Premier or Enterprise-Nonprofit. The non-profit versions of the software are easy to install and use. Like other QuickBooks’ variants, these can also be customized to fit the unique requirements of your business.
Here are some more benefits:
a. Non-profit terminologies
You don’t have to navigate the software to find the right options or alternatives to regular accounting terminologies. You would easily find options like donations, donors, projects, grants, programs, and pledges. This will make it easy for you to decide which set of data goes where. As a rule of thumb, your customers are donors, and the jobs are grants.
Similarly, you can use invoices to track pledges, and the sales receipts can be entered in the column of donations. Together, you’d find these options on separate menu lists under the non-profit menu list. Once you get the hang of it, you can allocate expenses across multiple programs, acquire the right reports, post expenses, and income by the fund, and manage donors and grants.
b. Specific reports
Financial reporting for non-profit organizations is different from standard reporting. With QuickBooks Non-Profit, you can generate the following specific reports easily:
- The Donor/Grants Reports shows you a summary of the total amount donated by each donor and how it was spent. You can also filter out the reports to view each donor’s individual contribution and expense account.
- The Donor Contribution Summary also shows the total donated funds. However, you can filter out this data in terms of the time period and the customer type.
- The Biggest Donor Report shows the total funds, with the biggest contributor on the top of the list.
- The Budget vs. Actual by Donors Report compares the amount of funds donated by each donor with what you budgeted for a certain time period.
- The Statement of Financial Position is quite similar to a standard balance sheet. This is generated to tell an outside party how the non-profit organization is doing in terms of its financial health. This is especially important because most donors are interested in this report before granting funds.
c. Track funds
You can also use a sales order to record and track the promised incoming funds. The same can be done for guaranteed funds that are expected for a future event. The sales order is more like a non-posting transaction. This means that it won’t necessarily show up in the general ledger, and you can track it for future transactions even before the donations are invoiced. By invoice, we refer to the transaction between your organization and a donating entity. Once the sale is ready to be complete and the transaction takes place, you can complete the invoice processing using a single click.
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