Accounting for a non profit organization (NPO) is definitely no easy task. Most NPOs, like other profit-oriented businesses, follow a yearly accounting cycle. This cycle requires the completion of tasks related to the NPO's financial standing, including the generation of financial reports and financial analysis. The information stated in the reports is considered important to the organization's shareholders and controlling boards, and may be required by state authorities as well.
During an accounting cycle, an NPO's accounting department may deal with two main aspects of accounting: bookkeeping and fund accounting. Both processes are vital in ensuring that the organization's financial condition is accurately documented and reported. These help concerned parties spot any discrepancies in the organization's finances and fix these errors accordingly.
Bookkeeping mainly involves the recording of all financial transactions the NPO engages in. For instance, an NPO may regularly receive checks as donations and grants. For each check received, a clerk or bookkeeper on the organization's accounting team takes note of the check's amount and where the amount is going to be used. This method helps the accounting department keep track of all the money that an NPO receives, as well as the purposes for which the money is used.
The accounting department of a non profit organization may initially perform bookkeeping duties using a manual system through checkbooks, journals, and ledgers that are updated by hand. This is especially true for NPOs that are just starting out. Mid to large-scale NPOs usually have accounting teams that use automated systems through computers and accounting software. With technology, accounting for non profit organizations becomes easier and more convenient.
Fund accounting, on the other hand, focuses on the accountability of the use of an organization's funds. Funds of NPOs are usually categorized into five different areas: current unrestricted fund, land, building and equipment fund, endowment funds, and custodian funds. Through non profit fund accounting, shareholders and controlling boards of NPOs can ensure that all these funds are used according to their purposes.
Accounting departments of non profit organizations typically use accrual basis accounting to keep track of the organization's funds. In this method of non profit fund accounting, accountants or accounting clerks record expenses and revenue as they are incurred.
During an accounting cycle, an NPO's accounting department may deal with two main aspects of accounting: bookkeeping and fund accounting. Both processes are vital in ensuring that the organization's financial condition is accurately documented and reported. These help concerned parties spot any discrepancies in the organization's finances and fix these errors accordingly.
Bookkeeping mainly involves the recording of all financial transactions the NPO engages in. For instance, an NPO may regularly receive checks as donations and grants. For each check received, a clerk or bookkeeper on the organization's accounting team takes note of the check's amount and where the amount is going to be used. This method helps the accounting department keep track of all the money that an NPO receives, as well as the purposes for which the money is used.
The accounting department of a non profit organization may initially perform bookkeeping duties using a manual system through checkbooks, journals, and ledgers that are updated by hand. This is especially true for NPOs that are just starting out. Mid to large-scale NPOs usually have accounting teams that use automated systems through computers and accounting software. With technology, accounting for non profit organizations becomes easier and more convenient.
Fund accounting, on the other hand, focuses on the accountability of the use of an organization's funds. Funds of NPOs are usually categorized into five different areas: current unrestricted fund, land, building and equipment fund, endowment funds, and custodian funds. Through non profit fund accounting, shareholders and controlling boards of NPOs can ensure that all these funds are used according to their purposes.
Accounting departments of non profit organizations typically use accrual basis accounting to keep track of the organization's funds. In this method of non profit fund accounting, accountants or accounting clerks record expenses and revenue as they are incurred.
