Whether you’re analyzing donor engagement, fundraising success, or service delivery, effective data collection allows your organization to make more informed decisions so you can capitalize on your strengths and avoid repeating past mistakes. It also helps your nonprofit be more transparent with various stakeholders—supporters, funders, and even the government.
Tracking financial data is similarly vital. While many nonprofit accounting activities revolve around compliance, they also help your organization evaluate its spending and revenue generation to make the most of its resources and demonstrate financial responsibility to its supporters.
If you’re just getting started with nonprofit accounting, one of the most straightforward entry points is to learn about some of the key documents involved in this process. Let’s walk through four types that you’ll see frequently together.
1. Chart of Accounts
Your chart of accounts (COA) is essentially a directory of your nonprofit’s financial records. It lists all of your ledgers and accounts in a table format and assigns numbers to each one so they’re easier to find, review, and report on.
Here is a quick breakdown of the general categories you’ll likely see on your nonprofit’s COA:
- Assets (account numbers beginning with 1000): Everything your nonprofit owns, such as cash, property, equipment, and accounts receivable.
- Liabilities (account numbers beginning with 2000): Everything your nonprofit owes, including debt, deferred revenue, and accounts payable.
- Net Assets (account numbers beginning with 3000): What your nonprofit is worth, calculated by subtracting your total liabilities from your total assets.
- Revenue (account numbers beginning with 4000-6000): All of the funding your nonprofit brings in through individual donations, corporate philanthropy, earned income, investment returns, and grants.
- Expenses (account numbers beginning with 7000-9000): All of the resources your nonprofit spends on its mission-related programs and projects, administrative needs like staff compensation and facility costs, and upfront expenditures associated with fundraising campaigns.
These sections and account numbers are based on the Unified Chart of Accounts (UCOA), a model COA that aligns with nonprofit reporting standards. However, most small to mid-sized organizations find that the UCOA is too complex for their needs, so they end up using its general structure as a foundation and just including the accounts they regularly use on their COA.
2. Budgets
If you’ve organized a budget for your household before, you know that the goal of creating this document is to provide direction for your spending and income generation. Nonprofit budgeting serves a similar overarching purpose, but it sets a direction for your whole organization, so it’s an involved process that many people at your nonprofit (finance team, fundraising staff, board members, executive leadership, etc.) should have input on.
Your nonprofit might have to create several different types of budgets depending on its activities. According to Jitasa, the most common ones include:
- Operating budget: This is probably what comes to mind when you hear the term “nonprofit budget”—the master financial plan that projects all of your organization’s revenue and expenses for a given fiscal year.
- Fundraising campaign budget: These documents track the upfront costs of revenue-generating initiatives, especially highly involved ones like events or 24-hour giving days, to help you determine your return on investment (ROI) for the campaign.
- Capital budget: These budgets outline the expenses associated with multi-year projects like capital campaigns and explain how you’ll cover those costs over their full duration.
- Program budget: Since launching a new mission-related program typically requires many one-time investments, creating a separate budget for it to start can help you differentiate these from recurring expenses and ensure you can fund it long-term.
- Grant proposal budget: Most grantmakers will ask for a budget as a section of a grant application to demonstrate that your organization will use the funding wisely if you win it.
To be as useful as possible to your nonprofit, all of these budgets should include defined activities, realistic metrics, and specific timelines for spending and revenue generation. Additionally, make sure any niche type of budget you create aligns with your operating budget.
3. Financial Statements
Financial statements are among the most helpful reports for all nonprofit professionals. Each of these statements organizes and summarizes your organization’s accounting data in a different, actionable way to inform your operations.
The four core nonprofit financial statements are the:
nonprofit accounting documents_supplementary [alt text: A mind map of the four core nonprofit financial statements and the data each one reports, which are explained below.]
- Statement of activities. As the nonprofit equivalent of a for-profit income statement, this document details your organization’s revenue, expenses, and change in net assets for a given year to lay the foundation for future budgeting decisions.
- Statement of financial position. Also known as a balance sheet, this statement outlines your nonprofit’s assets, liabilities, and net assets to provide a snapshot of your financial health and potential for growth.
- Statement of cash flows. This report tracks how cash moves in and out of your nonprofit through operating, investing, and financing activities. It’s typically compiled monthly rather than annually like the other statements to help keep your spending and fundraising on track with your budget throughout the year.
- Statement of functional expenses. This is the one financial statement unique to nonprofits because it shows how your organization’s spending furthers its mission by breaking down program, administrative, and fundraising costs in detail.
In addition to using these documents for internal decision-making, they also help with external transparency by providing financial information for your annual report. Loop recommends including high-level data in the report itself—using charts and graphs to make it more digestible—and attaching full versions of your financial statements as appendices in case some readers want to dig deeper.
4. Tax Forms
If your nonprofit has valid 501(c)(3) status, it’s exempt from paying federal income tax, as well as many state taxes. But just because your organization is tax-exempt doesn’t mean you can completely write off tax season! You still need to file a few forms each year to comply with IRS and local nonprofit requirements, including:
- Form 990. This is the federal tax return for exempt organizations, which your financial statements will help you complete. There are four versions of the form—990-N for small nonprofits, 990-EZ for mid-sized organizations, the full 990 for large nonprofits, and 990-PF for private foundations—so make sure to file the right one for your organization.
- State-specific forms. Certain states have extra tax forms that nonprofits have to fill out to remain exempt from state taxes—Form 199 in California and Form CHAR500 in New York are the best-known ones. Other states ask for a copy of Form 990 or other annual forms not related to taxes to maintain nonprofit status, so it’s important to stay up-to-date on the requirements for your state.
- Employer forms. Your organization is also required to provide its team members with individual tax forms to help them file their returns. Every employee on your payroll should receive a W-2, and any contractors you work with will get a 1099.
Be mindful of the deadlines for each of these forms, since submitting late can incur fines or even risk your 501(c)(3) status if it happens repeatedly. Form 990 is due on the 15th day of the fifth month after your nonprofit’s fiscal year ends (May 15 if your fiscal year follows the calendar year), W-2s and 1099s need to be distributed by January 31, and each state sets its own deadlines for additional forms.
If you need help creating or interpreting any of these documents, don’t hesitate to contact an accountant who specializes in nonprofit work. They’ll be able to use their experience and expertise to ensure your organization’s financial planning, recordkeeping, and reporting not only comply with regulations but also contribute to its long-term health and sustainability.
About the Author
Jon Osterburg
Since joining Jitasa in 2010, Jon Osterburg has helped hundreds of nonprofits around the world effectively manage their finances through tailored, outsourced bookkeeping and accounting services. He currently serves as Jitasa’s Chief Operating Officer, is a member of two nonprofit boards, and has earned a certificate for Executive Education from the Yale School of Management.
