Bookkeeping for Non-Profits: Unique Requirements, Tax-Exempt Compliance

Non-profit bookkeeping goes far beyond tracking debits and credits—it ensures organizations remain mission-focused, compliant, and ready for grants, donor transparency, and IRS audits. Specialized bookkeepers bring expertise in fund accounting, donor restrictions, and adherence to evolving regulations.

Unique Bookkeeping Needs of Non-Profits

Fund Accounting: Unlike for-profits, non-profits must categorize funds as restricted, unrestricted, or temporarily restricted based on donor intent and grant requirements.

Grant Management: Track every dollar spent by program or grant to support transparency, renewals, and prevent clawbacks.

Tax-Exempt Compliance: Maintain records for Form 990 filings, state charity registrations, and public support tests.

Specialized Bookkeeping Practices

1. Categorizing Revenue and Expenses by Fund/Program

• Use fund accounting software (QuickBooks Non-Profit, Aplos, Sage Intacct for non-profits) with separate ledgers for each donor/program.

• Assign codes to donations, grants, events, and matching gifts for reporting ease.

2. Tracking Donor Restrictions and Releases

• Document donor restrictions on gifts and grants.

• Record journal entries as restrictions are met or released (e.g., program completed).

3. Budgeting for Program Impact

• Budget by program, calculate cost-effectiveness, and ensure restricted funds are used as intended.

• Prepare regular variance analysis for board review.

4. Grant and Contract Compliance

• Track every grant dollar for allowable use, deadlines, and key reporting metrics.

• Document all expenditures—retain receipts, timesheets, invoices.

5. Preparing for Audit and Form 990

• Organize documentation for independent audits: ledgers, supporting receipts, payroll, board minutes.

• Prepare IRS Form 990: reconcile books and ensure narrative on mission, governance, and activities matches financials.

Example

A community non-profit scaled quickly, handling multiple grants and $500k+ in annual donations. Their bookkeeper upgraded to Sage Intacct, implemented fund tracking, and produced monthly grant reports. Transparent records led to successful audits, more major donors, and federal grant renewals.

Best Practices

• Review bookkeeping workflows quarterly for compliance.

• Train staff to understand donor restrictions and document all gift/grant communication.

• Communicate regularly with auditors and tax advisors.

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Disclaimer:
This blog is for informational purposes only and does not constitute direct tax, financial, or legal advice. For guidance tailored to your individual situation, please consult one of our licensed professionals.