A Complete Guide for NGO Accounting and Accountability.

Bookkeeping for Nonprofit organization.

A non-profit organization’s accounting and bookkeeping are different from those of a for-profit organization. The accounting tasks and principles are a bit customized for tracking and analyzing the financial transaction for the non-profit organization.

NGO is a non-profit making organization so the accounting and bookkeeping requirements are unique. Get in detail with this complete guide for NGO accounting and accountability. Organizing your business’s bookkeeping can be difficult. With that in mind, our bookkeeping organizations service is the perfect solution.

NGO accounting

Usually, an NGO organization has a treasurer or a financial officer to take care of the finances. Here are some important things that treasure must know to perform the accounting job. Here are some unique requirements to account for the financial transaction.

Select an accounting method:

A proper bookkeeping depends upon choosing an accounting method for recording inflow and outflow of money. Just like any business, it needs adequate cash flows to pay for employees’ wages, utility bills, rent, etc. It has sources of revenue such as contributions from the donors, membership fees, etc. Thus, to account for all the incoming receipts and outgoing payments. These two methods of accounting are to follow: cash basis of accounting and accrual basis of accounting. The cash basis works on the actual exchange of cash whereas the accrual basis works on when a transaction occurs irrespective of receipt/payment of cash.

Know tax compliances:

If an NGO applies and qualifies for tax-exemption status, there is no tax obligation, but you have to file a business tax return. Submission of all the forms that qualify a business for tax exemption is also necessary. Irrespective of no tax payable, an NGO business is still required to report revenue and expenses. So, keeping accurate records and reports of business activities and finances is crucial for an NGO accounting.

Prepare appropriate financial statements:

A nonprofit accounting also requires them to prepare financial statements to report their finances. There are three main financial statements:

Statement of activities.

Statement of financial position.

Statement of cash flows.

• Statement of activities is the nonprofit accounting version of the income statement. Just like an income statement, it tells the revenue and expenses of the organization over a period of time. Since nonprofits don’t earn profits, thus it calculates the changes in net assets of the business.
   
• Statements of financial position provide a clear view of the financials of the nonprofit organizations at a particular point. It shows what they own, what they owe, and how money is left with them. It has nets assets that express the excess of assets over liabilities. It is the balance sheet equation for nonprofit accounting.
   
• Statement of cash flows: It helps to track all the cash flows of the organization. It represents the cash generated from the investing, operating, and financing activities. The nonprofit version of the cash flow statement shows the change in the net assets and lists cash flows restricted to certain uses. It will have items such as membership fees, fundraising proceeds, and donor contributions, program fees, etc.

Once a bookkeeping system is in place, you can start preparing financial statements. These financial statements track how much money you have, where your money is, how and why your money got there.

QuickBooks Aplos, Freshbooks, Nonprofit treasures, etc., are some of the bookkeeping software for nonprofit organizations that allows you to generate financial transactions automatically. Even though you can generate financial statements manually from your ledger or spreadsheet, but it will require proper accounting knowledge and plenty of time to do. The best way is to let your accounting software or a bookkeeper organization like Accounts Junction take over this task.