Mastering the Basics: 10 Tips to Non-Profit Accounting

Running a small nonprofit is a labor of love, purpose, and perseverance. But love and mission alone won’t keep the doors open or the programs running. Sound financial practices, especially accounting, are essential to fulfilling your mission and maintaining the trust of donors, grantors, and the community you serve. Whether you’re just getting started or looking to strengthen your systems, here are key strategies to help your nonprofit build a solid accounting foundation.

1. Choose the Right Accounting Method: Cash vs. Accrual

a) Cash Basis: Record income and expenses when money changes hands. Easier for small nonprofits.

b) Accrual Basis: Record income and expenses when earned/incurred. Offers a clearer financial picture. This is accepted method according to generally accepted accounting principles.

Recommendation: Use accrual for better long-term tracking and funder confidence.

2. Establish a Nonprofit-Specific Chart of Accounts (COA) Design your COA to reflect:

a) Programs and functions

b) Funding sources

c) Restricted vs. unrestricted funds

Benefit: Clearer tracking and accurate reporting.

3. Track Restricted and Unrestricted Funds Separately - Ensure funds are used according to donor intent.

a) Document restrictions.

b) Report fund usage clearly.

Why it matters: Protects legal compliance and builds donor trust.

4. Use Class and Fund Accounting Track spending by:

a) Program area (class tracking)

b) Donor restrictions (fund tracking)

Outcome: Better grant reports, internal decisions, and transparency.

5. Budget with Purpose

a) Create operating and program budgets.

b) Base projections on data.

c) Review monthly vs. actual spending.

Pro Tip: Treat your budget as a living document.

6. Invest in the Right Tools Affordable nonprofit accounting software: QuickBooks for Nonprofits, for example.

Tip: Prioritize fund tracking and reporting features.

7. Prioritize Internal Controls - Separate duties - Require dual approvals - Maintain receipts - Regular board or finance reviews

Result: Prevent fraud and improve accuracy.

8. Be Audit-Ready - Organize records - Produce accurate reports - Understand spending by source

Note: Required if receiving $750,000+ in federal funds.

9. Educate Your Team Train board/staff/volunteers on: - Reading financial statements - Understanding budget reports - Managing restricted funds

Impact: Empowered decisions and financial literacy.

10. Tell the Financial Story of Your Mission—Show how funds support programs - Highlight efficiency - Share wins with numbers and stories

End Goal: Inspire continued support and trust.

Smart accounting is about more than compliance—it’s about stewardship and sustainability. With the right tools and strategies, your small nonprofit can thrive financially while staying focused on the mission that matters most.