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Top 5 Accounting Tips for Nonprofits
- Jeremy Springer
- 41 minutes ago
- 5 min read
Nonprofits are mission first—but mission needs money to move. Strong accounting gives your board, staff, and donors the confidence that every dollar is used as intended. Below are five field-tested tips to help your organization tighten controls, tell a clearer financial story, and spend more time on impact—not paperwork.
1) Build a mission-based chart of accounts and use fund accounting from day one
What to do: Structure your chart of accounts so you can see results by fund (restricted, unrestricted, board-designated) and by program or project. Keep account names clear and consistent; avoid donor names or one-off labels in the ledger.
Why it matters: Donors, grants, and board decisions often hinge on whether dollars were used for the intended purpose. Fund accounting lets you show the right “buckets” at a glance and prevents restricted dollars from being spent on the wrong activities.
How to put it in place:
Define your funds (e.g., “General/Unrestricted,” “Youth Program—Restricted,” “Capital Campaign—Restricted”).
Add a second dimension—classes, programs, or departments—to capture program results.
Standardize naming conventions and write a one-page chart-of-accounts guide for staff.
Where tech can assist: Most accounting systems support fund/classes or tracking categories. Turn them on, lock old periods once closed, and use memorized transactions to keep coding consistent.
2) Get revenue recognition and donor restrictions right—every time
What to do: Document how you recognize contributions, grants, dues, and in-kind gifts. Distinguish between conditional (earned when conditions are met) and unconditional support, and track donor-imposed restrictions until they’re released.
Why it matters: Misstating revenue or restrictions confuses boards and funders and can create compliance issues. Clear policies ensure your financials, grant reports, and Form 990 all tell the same story.
How to put it in place:
Create a short gift acceptance and recognition policy that covers pledges, conditional grants, and in-kind valuation.
Use release-from-restriction entries when purpose/time restrictions are met; don’t bury them in net assets.
Keep supporting documentation: award letters, grant agreements, donor letters, and valuation worksheets.
Where tech can assist: Connect a donor or grant tracker (even a well-designed spreadsheet) to your ledger with unique IDs so awards, restrictions, and releases match exactly.
3) Tighten internal controls—especially with lean teams
What to do: Implement segregation of duties wherever possible. If your team is small, substitute segregation with oversight: approvals, logs, and regular reviews that leave an audit trail.
Why it matters: Most control failures are simple—one person doing everything, undocumented approvals, or unreconciled accounts. A few guardrails dramatically reduce risk.
How to put it in place:
Cash handling: Two people count cash/checks; log deposits; scan and save deposit slips.
Disbursements: Require documented approvals before bills are paid; match to purchase requests or contracts.
Payroll: Someone other than the preparer reviews timesheets, pay rates, and final payroll reports.
Reconciliations: Reconcile bank/credit card accounts timely each month; the ED or treasurer reviews and initials.
Conflicts: Annual conflict-of-interest disclosures for board and key staff.
Where tech can assist: Use view-only bank access for reviewers, simple e-approval on bills, and locked accounting periods after the month-end close.
4) Build a program-based budget—and reforecast during the year
What to do: Budget by program and fund, not just totals. Include direct costs and a fair share of shared costs (rent, admin staff). Reforecast at least quarterly to reflect grant timing, new initiatives, or changes in fundraising.
Why it matters: Program managers need to see “their” numbers to make decisions. Boards need to see the full cost of programs to price grants and campaigns responsibly.
How to put it in place:
Start with a 12-month operating budget that maps revenue and expenses to programs and funds.
Add a simple cash flow projection to anticipate seasonal dips (e.g., a summer lull before year-end giving).
Present both results and purpose: “We’re projecting a $50k surplus in Unrestricted to rebuild reserves.”
Where tech can assist: Use your accounting system’s budget vs. actual reports by class/fund. A lightweight spreadsheet model can handle reforecasts and scenarios (“What if the gala nets 15% less?”).
Pro Tip: Your budget is a tool or a guide; it is not your bible. You can modify the budget as needed (remember to document your changes!), or you can remember your budget was a "best guess" when it was prepared.
5) Allocate shared costs fairly and consistently
What to do: Adopt written, practical methods to allocate shared expenses across programs, management & general, and fundraising (the functional expense categories shown in your Form 990). Common drivers: staff timesheets for salaries, square footage for occupancy, headcount for office supplies, and direct usage for software.
Why it matters: Funders and the Form 990 expect accurate functional expense reporting. Documented methods keep costs supportable and comparable year to year—and avoid the trap of under-reporting admin costs.
How to put it in place:
Write a Cost Allocation Plan: which drivers you use, how often you update them, and examples.
Collect monthly time allocations from staff with split roles; avoid guessing at year-end.
Review allocation rates at least annually (or when your footprint or staffing shifts materially).
Where tech can assist: Basic timekeeping and a simple allocation worksheet will do. Many accounting systems let you automate recurring allocation journal entries.
Bonus: Prepare for audits and Form 990 all year, not just in Q1
What to do: Keep a rolling checklist, a grant reporting calendar, and a document retention policy. Close on a predictable monthly schedule so records are always audit-ready.
Why it matters: Year-round habits slash audit prep time, prevent last-minute scrambles for grant reports, and make your Form 990 a communication asset instead of a compliance chore.
How to put it in place:
Maintain a shared folder with bank recs, grant files, contracts, board minutes, payroll registers, and major approvals.
Track single audit exposure if federal awards approach the threshold.
Debrief after each audit: what slowed us down, and how do we fix it before next year?
Where tech can assist: A clear cloud folder structure and a recurring close checklist are simple wins; restrict delete permissions and version key documents.
A quick nonprofit accounting checklist
Do our funds and programs show the story donors expect to see?
Are restrictions clearly documented and released on time?
Can we point to controls and reconciliations that a new board member would understand?
Do managers own a program-based budget and see timely reports?
Are allocations written, defensible, and applied consistently?
Are we audit-ready every month?
Strong nonprofit accounting isn’t about chasing perfection—it’s about creating clear, repeatable habits that protect your mission and build trust. If you’d like a second set of eyes on your chart of accounts, allocation plan, or month-end close, a nonprofit-savvy accountant can help you tailor these practices to your size, funding mix, and board expectations.
Legal Disclaimer: This post contains general information for taxpayers and should not be relied upon as the only source of authority. Taxpayers should seek professional tax advice for more information. This information was current at time of posting; we are not responsible for updating this or any blog post/article for subsequent changes in the law or its interpretation.
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