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What are the Best Tips for Not-For-Profit Accounting?

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  • Written By: Jess Rhodes
  • Edited By: Jenn Walker
  • Last Modified Date: 18 September 2016
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Running a successful not-for-profit business requires a solid understanding of location and organization-specific accounting regulations. Building a not-for-profit accounting system that meets local requirements is one way to adhere to them. Thorough and ethical record keeping of financial activity also increases the accuracy and legality of not-for-profit accounting.

Not-for-profit organizations do not need to apply for tax exemption, but doing so can increase funds available for organizational goals. Exemption requirements are region specific and should be consulted for additional information. Receiving non-profit status does not imply federal tax-exemption in the U.S., for example.

Not-for-profit accounting departments should be aware that accounting procedures vary by geographical location. Many U.S. firms use the Generally Accepted Accounting Principles, while many international firms use the International Financial Reporting Standards. Tax requirements also vary by region.

Keeping someone with an accounting background on staff can be helpful when setting up an accounting system or filing taxes, but organizations without this luxury can consider completing self-tutorials or hiring outside help. For those wanting to complete required forms themselves, local tax authorities often provide tutorials regarding forms and procedures. Certified public accountants can also provide much information about policies and procedures.

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Good record keeping is required for successful accounting. Having bylaws, organizational policies and tax requirements accessible for the financial manager can be helpful. Some accounting software programs will warn users when they are missing information, but for those operating without software, a checklist of requirements may keep employees aware of procedural requirements.

Knowing specific tax requirements helps organizations create supportive accounting systems as well. For example, not-for-profit firms in the U.S. must submit a report with the appropriate 990 form every tax year. The required report contains a Statement of Financial Position, similar to a balance sheet, a Statement of Activities, similar to an income statement, and a Statement of Cash Flows. The 990 requires information about schedules, non-cash contributions, tax-exempt bonds, and executive salaries. A not-for-profit accounting system in the U.S., therefore, could be modeled around information required in these specific tax documents to ease filing procedures.

A major difference in accounting procedures between profit and not-for-profit firms involves the categorization of expenses and revenues. Tax-exempt revenues are often categorized by support type, as not-for-profit funding can come from a variety of sources. Not-for-profit expenses in certain locations must be labeled as well, to ensure organizational expenses use collected revenues appropriately.

Financial management software can provide assistance to not-for-profit accounting departments as well. Software packages appropriate for not-for-profit accounting will differ slightly from software used in for-profit firms. For example, not-for-profit accounting software includes the ability to classify expenses with multiple labels and the ability to separate revenues and their requirements.

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