The ability to collect, analyze, and interpret grant-related data can facilitate more informed decision-making, enhance financial planning, and improve grant performance. Its relevance lies in its ability to provide real-time insights into how funds are being spent and whether expenses align with the budget. This enables prompt identification and correction of any 5 Main Benefits of Accounting Services for Nonprofit Organizations overspending, thus ensuring proper use of funds. Whether you’re new to grant accounting or looking to improve your current practices, these tips and strategies will help you create a robust and transparent system for grant budget tracking. Kirsten is a Principal with SVA Certified Public Accountants and her expertise includes the nonprofit and real estate industries. In addition to providing audit, accounting, and tax services, Kirsten also provides review, compilation, and management advisory services.

Restricted Funds

That way you would see the balance decreasing as the funds are being used and the revenue is accounted for. Once the budget is established, the focus shifts to implementation and monitoring. Well-crafted reports not only meet grantor expectations but also demonstrate the organization’s commitment to transparency and accountability. It may be hard to believe but getting too much money can sometimes destabilize a nonprofit organization. This includes revenue from donations, membership dues, program fees, grants, and other sources. Grant funds are usually recorded as revenue in your accounts, which you can use to track how the money is spent.

• These restrictions may permanently limit the use of the asset received, stipulate the assets be used at a particular point in time, or be specific for a particular purpose or program.
• This comparative analysis helps identify areas of strength and opportunities for improvement, guiding strategic planning and resource management.
• Monthly or quarterly reports typically include analyses of revenue streams, expenditure categories, and fund balances.
• Stay tuned as we continue our exploration of grant accounting to empower your nonprofit’s financial success.
• For example, a city government might have separate funds for general operations, capital projects, and special revenue, each with distinct financial statements.

How Can Rooled’s CFO Services Assist Nonprofit Organizations?

Nonprofits sometimes have to apply for emergency grants to access funds to cover short-term funding gaps. These three grants are specifically linked to different processes, all of which are crucial to the operations of any nonprofit. Government grants are financial assistance from government departments or bodies to nonprofits.

Solutions & Services

Conditions delay recognition until obligations are fulfilled, whereas restrictions detail how to use the funds. This article is going to explore the public support test on Schedule A of a Nonprofit organization’s 990. Nonprofit organizations must be organized and operated exclusively for exempt purposes and…

Why is grant accounting for nonprofits important?

Now that we’ve covered the importance and essentials of grant accounting, let’s switch gears and focus on how to set up a robust financial tracking system. This will aid in practically applying these concepts, ensuring your grant funds are accurately managed and accounted for. Lastly, sound grant accounting practices help prevent potential financial mismanagement. By requiring detailed tracking and reporting of each expenditure, it becomes harder for funds to be misused or misallocated.

Restricted vs. Unrestricted Funds: Best Practices for Accountability

• By analyzing these indicators, nonprofit leaders can identify trends, assess risks, and make informed decisions about resource allocation and program expansion.
• Unlike for-profit organizations, where there is a unified tracking system, nonprofit organizations are restricted to separate tracking of financial transactions.
• Use of ANAFP’s website, resources, publications, tools, materials, and email lists are subject to ANAFP’s Terms of Use and Privacy Policy.
• When in doubt, please consult your lawyer tax, or compliance professional for counsel.
• With the right processes in place, your organization can benefit from increased accountability and transparency, improved grant performance, and more efficient use of funds.
• The accounting system also should be able to generate budget-to-actual variance reports to monitor differences in budgeted amounts for revenue and expenses and the organization.

Because grant management can touch so many different parts of your organization, it’s especially important to secure teamwide buy-in and https://nerdbot.com/2025/06/10/the-key-benefits-of-accounting-services-for-nonprofit-organizations/ clearly outline responsibilities in advance (more on this below). Equip your team with the knowledge and skills to understand and apply revenue recognition standards. These sources may require additional tracking for restrictions or donor specifications. Nonprofits recognize a donation restricted to funding scholarships immediately if no conditions exist, but they delay recognizing a conditional promise until they meet its requirements.

• As shown in the income statement below, new income from a grant with donor restrictions is recorded and displayed in the With Donor Restrictions column.
• Advancement to a Director of Grants position is achievable with extensive experience in grant management, strategic planning, and leadership.
• It simplifies the process of executing and reporting on your grant, and the easy access to past data that it provides lays the groundwork for easier grant seeking and management in the future.
• This involves recording assets at cost, depreciating them systematically, and periodically assessing their value for impairments or disposals.
• By monitoring expenditures closely, nonprofit organizations can ensure that restricted funds are being used properly and that unrestricted funds are available for operational needs.

The accrual accounting method gives a more accurate picture of the organization’s financial health and helps track grants and restricted funds more effectively. However, nonprofit accounting is vital when handling restricted funds from multiple sources, managing government grants, or preparing for audits. Organizations planning major program expansions or dealing with complex compliance requirements also benefit from professional nonprofit accounting oversight. Encumbrance accounting is an essential tool for nonprofit financial professionals, especially those managing long-term projects or multi-year grants.