Bookkeeping for a small nonprofit: keeping restricted money straight and year end calm

A small business asks its books how much it earned. A nonprofit asks that and one more thing: what is each dollar allowed to do? A donor who gave for a specific program, a grant with conditions and a general gift at a fundraiser all land in the same bank account, yet they aren't interchangeable. If the books can't tell them apart, the treasurer ends up reconstructing the story under pressure, usually right before a board meeting.

Restricted and unrestricted, in plain terms

Unrestricted money can be used for whatever the organization needs. Restricted money comes with a limit set by the donor or the grant, such as a particular program, a purpose or a time period. The restriction is a promise, and the books are where you keep track of it.

The common mistake is relying on the bank balance to tell you what's available. A nonprofit may have a healthy balance and still have little it's free to spend on rent or payroll, because most of it belongs to commitments already made. Keeping the funds separate in the records, not only in someone's memory, lets you answer the board's first question honestly.

How the tracking is usually set up

In QuickBooks, many nonprofits use a combination of the chart of accounts and classes. Income accounts describe the kind of money, such as contributions, grants or program fees, and classes tag each transaction with the fund or program it belongs to. Then a report can show you what came in and what went out for one program or one grant, without a spreadsheet kept on the side.

• Give each restricted gift or grant its own class or fund, named in a way the whole team recognizes.
• Record the donor's or funder's restriction when the money arrives, not when someone asks about it.
• Tag expenses to the program they served, and split shared costs such as rent in a consistent, documented way.
• Keep the grant agreement and any reporting requirements with the records for that grant.
• Review the balance of each fund every month, not once a year.

How you describe and report these funds formally is a matter for your organization's accountant or auditor, who can tell you what applies to you. The bookkeeping job is to make the information available and accurate so that they can.

A board report people actually read

Board members are volunteers with limited time. They don't need forty pages. They need a few reliable pages they can read before the meeting and trust during it. A useful monthly package covers a statement of income and expenses compared with the budget, a balance sheet, a short list of restricted funds and their balances, and receivables from grants or pledges that are still outstanding. A paragraph of plain commentary on anything unusual helps more than another table.

Consistency matters more than polish. If the same pages arrive in the same format every month, the board learns where to look, and a real change stands out quickly.

The year-end hand-off to your tax preparer

At year end, your preparer or auditor will want a closed set of books and the support behind them. You can make that painless by working on it all year. Reconcile every account through the last day of the year. Confirm that restricted funds agree with your grant and donor records. Gather payroll reports and the documents for any workers you paid. Collect acknowledgments you've issued to donors, and the paperwork for major gifts and grants.

Requirements and filing dates for nonprofits depend on your situation, so check the current ones with your tax preparer instead of assuming. What you can offer them is a tidy file, a clear explanation of each fund, and answers to their questions on the first email instead of the fourth.

Support for a small team

Many small nonprofits are run by a handful of staff and volunteers, and the treasurer's role often falls to someone with a day job. Guirian Bookkeeping Services LLC works with nonprofits as well as small and medium-sized businesses across Waldorf, White Plains, Washington DC, Bethesda and Silver Spring, remotely and by appointment. Amy Guiriansoro is an Advanced Certified QuickBooks ProAdvisor in QuickBooks Online and QuickBooks Payroll. Read about Guirian's tax services on this site for how the year-end hand-off works, then call (301) 848-6619 to set up a consultation.