The

Beginner’s
Guide to
Nonprofit
Accounting
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Nonprofit professionals like yourself rarely enter the nonprofit sector to
become an accountant. Generally, you enter this field to help contribute to
the community and make the world a better place. However, it’s important
for nonprofits to have an understanding of how nonprofit accounting
works to better manage funds and advance the organization’s mission.

Nonprofit accounting is unique and multi-faceted. Not only do nonprofits

need to track their funding and expenses, but they also need to compile
reports, disclose information to the IRS, and set budgets that take
restrictions set on various gifts and contributions into account.

Therefore, we developed this guide to cover the various aspects of

nonprofit accounting for the average nonprofit professional. Let’s get
started!

Table of Contents
▶ Basics of Fund Accounting

▶ Nonprofit Budgeting

▶ Accounting Statements and Reports

▶ Nonprofit Financial Tax Forms

▶ Financial Audits for Nonprofits

▶ Accounting and Grant Management

▶ Why Jitasa?

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Basics of Fund
Accounting

What is nonprofit accounting?

Nonprofit accounting is the unique process by which nonprofits plan,
record, and report on their finances. Nonprofits must follow the generally
accepted accounting principles (GAAP) in their financial practices and
ensure they respect the restrictions placed on the funding they receive
from individual contributors, grantor, and governing entities.

This brings us to one major difference between accounting in the nonprofit

sector when compared to for-profit companies:

Nonprofit accounting focuses on accountability compared to

standard businesses that focus on profitability as their primary
financial priority.

Say a major donor gives $50,000 to a nonprofit but says they want that
funding to only be used in support of a scholarship the organization
provides. The nonprofit must respect these restrictions and set that money

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aside for the scholarship. They must report on their finances and show
that they’ve respected the wishes of generous donors in these instances.

When you have one or two funds that are restricted, it may be simple to
put that funding aside. However, as your organization grows, you’re likely
to win additional grants and receive more major contributions, meaning
you’ll also have more restrictions to keep track of.

Take grant management as another example. If your nonprofit receives

three different grants and each is restricted for a different cause, you’ll
need to report back to the grant-making organizations about how you used
their funding. Plus, you might have a number of different deadlines to
keep track of for each grant.

Therefore, nonprofits use a system of fund accounting to properly allocate

their funding to various campaigns, programs, and activities. This system
allows nonprofits to take the restrictions set by contributors into account
while ensuring funds are used productively to support the organization as
a whole.

This system of fund accounting also ensures that all funds are recycled
back into the organization rather than taken as a profit.

Cash vs. Accrual Accounting

There are two different methods nonprofits may use to record their
revenue and expenses. The way in which you record these transactions
can greatly impact your organization’s accounting decision-making
processes. The two different methods are:

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 • Cash accounting. Cash accounting is the easier of the two
methods because your organization simply follows the cash. Your
accounting team records the revenue and expenses as it enters
and leaves the account.

• Accrual accounting. Meanwhile, accrual accounting allows

nonprofits to record revenue and expenses when incurred. For
example, this means you’d record your rent as you pay it rather
than waiting to record the transaction for several days until the
transaction is approved and actually hits your account.

Many organizations may get their start using cash accounting because
it’s easier for new nonprofits to keep track of. However, cash accounting
isn’t recognized by GAAP standards and doesn’t represent the nonprofit’s
finances as well as accrual accounting. For that reason, accrual accounting
is considered the gold standard for nonprofit organizations.

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Nonprofit
Budgeting

What is nonprofit accounting?

One key part of any accounting system is developing a budget for your
organization. Your nonprofit is no exception! Budgeting is an important
responsibility your team must take on to ensure you’re always advancing
your mission.

Your nonprofit budget should take into account not only the upcoming
expenses you have as an organization, but also the sources of your
revenue you expect to receive over a set period of time.

An effective nonprofit budget will accomplish the following:

• Define specific activities. Your budget should

be specific and align with your organization’s
overarching strategic plan. For instance, if you know
you need $25,000 to launch a new program this year,
you should go ahead and add that specific amount to
your budget and define what it will be used for.

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 • Set realistic measurements. It can be tempting to
be optimistic about your budgeted expenses in
order to stretch your budget as much as possible.
However, taking a more realistic approach as to how
much initiatives will actually cost will result in your
organization accomplishing more quality work than
simply stretching your funds as thin as possible.

• Cover a set time period. Usually, nonprofit budgets

cover a set fiscal year. However, this doesn’t mean
you should only glance at the numbers on an annual
basis. Rather, you should cover that period and
compare your actual revenue and expenses to your
budget regularly throughout the year.

So what does the nonprofit budget look like? It will probably look
somewhat similar to this example below:

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Revenue Budget Notes
Individual Donations $30,000 Based on previous year’s numbers

Grants $25,000 Based on previous year’s numbers

Events $24,000 Based on previous year’s numbers

Sponsorships $21,000 Based on previous year’s numbers

Matching Gift Revenue $5,000 Based on previous year’s numbers

TOTAL REVENUE $105,000

Expenses Budget Notes

Office Expenses $10,000
Lease $6,000
Fixed expenses
Water $2,000
Electric $2,000

Insurance $5,000 Fixed expense

Volunteer Recruitment $2,000 Based on previous year - increased by 10%

Advertisements $5,000 Based on previous year - increased by 10%

Program Supplies $40,000 Based on previous year - increased by 10%

Events $5,000 Based on previous year - increased by 10%

Advertisements $5,000 Based on previous year - increased by 10%

TOTAL EXPENSES $82,000

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Forecasting Revenue
Nonprofit revenue is challenging to predict because it depends on the
generosity of third parties like donors and grantmaking organizations.
However, by examining past revenue data, your nonprofit can make
effective projections about the revenue you expect to generate throughout
the next fiscal year.

There are two different ways your nonprofit can use this data to calculate
your approximate upcoming revenue:

• Discount method: Using this forecasting method,

your nonprofit identifies and estimates the
approximate amount of revenue you’ll receive from
line item fundraising sources. Then, you consider
the probability that you’ll receive that funding and
multiply the two numbers. For example, if you have a
75% chance of receiving a $100,000 grant, you would
forecast in your budget that you’ll receive $75,000 in
revenue from that grant.

• Cutoff method: This forecasting method is similar to

the discount method, but it doesn’t use line items
to make predictions. Instead, you would consider
your entire predicted fundraising revenue and
multiply that by the probability that you’ll receive
that funding. For example, if you expect to raise
$1,000,000 in funding this year and estimate that it’s
80% likely that you’ll hit that goal, you would forecast
$800,000 for your budgeted revenue.

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You’ll notice that both of these forecasting strategies underestimate the
revenue you’ll receive throughout the year. This is intentional as it ensures
you’ll be able to cover your expenses even if you don’t hit all of your goals
or do raise as much as you did in the previous year.

There isn’t a right or wrong method to use for your budget because
every nonprofit is different. Discuss these options with your nonprofit
accountant to determine which method will work best for your nonprofit as
you move forward with your budget.

Forecasting Expenses
As you plan out your expenses for the coming year, you should split these
costs into three different categories:

• Fundraising: Sometimes it takes money to make

money. This is the funding you use to run fundraising
campaigns and earn the revenue you need
throughout the year.

• Administrative: Part of your funding needs to be used

to keep your organization afloat. For example, these
expenses can include paying your staff members,
investing in key software solutions, and renting your
office space.

• Program: Program expenses are the funds that your

organization uses for actual program costs. For
example, an animal shelter might use their funds
to pay for vaccinations and veterinary care for their
animals.
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If you add together your organization’s fundraising and administrative
expenses, the result is your nonprofit’s total overhead. Overhead costs
describe the funds that don’t directly benefit your mission but help your
organization stay afloat and grow in order to have a greater impact later
on. They indirectly help your mission, which is how these funds also got
the name “indirect costs.”

Many nonprofits try to limit their overhead as much as possible, afraid

that supporters will think the organization is misusing its resources.
However, the perspective on overhead is changing. People are recognizing
that indirect costs have a great long-term impact, allowing nonprofits to
continue growing their operations and better serving their mission.

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Types of Nonprofit Budgets
Generally, there are two different types of nonprofit budgets that
organizations may create to manage their finances. These two types of
budgets include:

• Operating budget: Your operating budget covers the annual

projected revenue and expenses for your nonprofit. When you
consider creating your general budget for the upcoming year, this
is the budget you should work with.

• Capital budget: Your capital budget covers the expected revenue

and expenses for long-term projects and programs. For example,
if you’re hosting a multi-year capital campaign, this will be
accounted for in your capital budget.

Most of the time, when nonprofits consider their primary budget, they’re
thinking about the operating budget. However, to continue growing,
you’ll need to consider where you expect your nonprofit to be beyond the
upcoming fiscal year. You’ll need to see how this year fits into the bigger
picture, which is where your capital budget comes into play.

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Accounting Statements
and Reports

Nonprofit accountants compile a number of statements and reports that

provide insight into various aspects of your nonprofit’s finances. These
can help you better understand how the organization spends its funding,
where funding comes from, and your nonprofit’s general financial health.

Nonprofit Chart of Accounts

The nonprofit chart of accounts is the system by which nonprofits organize
their revenue and expenses. Essentially, this is the backbone from which
all reports are pulled. When a nonprofit is looking to learn more about
their statement of activities, they’ll pull the numbers to fill the report from
the chart of accounts.

Nonprofit charts of accounts are essentially a list to track your accounts

and ledgers, helping nonprofits keep track of financial transactions.

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For example, your individual contributions might fall under the category
of 1100. Meanwhile, grant funding may fall under 1200 and sponsorships
may fall under 1300. When the chart of accounts is complete, it will end up
looking something like this:

Assets Liabilities Net Assets Income Expenses

1100 Checking 2100 Accounts 3100 Unrestricted 4100 Individual 7100 Payroll
1200 Savings Payable Net Assets Contributions
7110 Payroll Taxes
1300 Investments 2200 Accrued 3200 Temporarily 4200 Corporate
7130 Benefits
Salaries Restricted Net Contributions
1400 Accounts Assets 7200 Depreciation
Receivable 2300 Accrued 4300 Bequests
Employee Benefits 3300 Permanently 7300 Contract
1410 Grants 4400 Federal
Restricted Net Services
Receivable 2400 Accrued Grants
Payroll Taxes Assets 8100 Office
1420 Pledges 4500 State Grants
Supplies
Receivable 2500 Accrued
4700 In-Kind
Property Taxes 8200 Rent
1500 Property Contributions
2600 Unearned/ 8210 Utilities
1600 Equipment 5100 Program
Deferred Revenue 8220 Real Estate
Service Fees
1700 Petty Cash 2700 Short-Term Taxes
5200 Member
1800 Notes/Loans Notes/Loans Dues 8230 Equipment
Receivable Payable Maintenance
5300 Investments
2800 Line of Credit 8300 Travel
5400 Event
2900 Government 8400 Fundraising
Sponsorships
Owned Fixed
Liabilities 5410 Event Tickets 8500 Marketing
5420 Event Auction 9100 Fixed Asset
Purchases
6100 Net Assets
Released From 9200 Payment to
Restriction Affiliates
6300
Miscellaneous
Revenue

Many organizations decide to use the standard chart of accounts setup

compiled in the Unified Chart of Accounts. However, this account is often
too comprehensive and advanced for smaller organizations. Smaller
teams would need to cut down the information in the chart so much that
it’s sometimes worth the effort to simply create a new one instead.

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Statement of Activities
The nonprofit statement of activities is parallel to the income statement
for for-profit companies. This form provides detailed information about
your organization’s various transactions and the activities associated
with those transactions. That way, your organization can review the
transactions and analyze how each one helped advance the organization’s
mission.

When the statement of activities is complete, it will likely look something

like this:
Temporarily
Revenues Unrestricted Total
Restricted
Individual Donations $150,000 $50,000 $200,000

Grants $50,000 $100,000 $150,000

Investment Income $75,000 $0 $75,000

Other $0 $0 $0

Total Revenues $275,000 $150,000 $425,000

Expenses

Program Services $160,000 $0 $160,000

General and Administrative $37,000 $0 $37,000

Fundraising $38,000 $0 $38,000

Total Expenses $235,000 $0 $235,000

Change in Net Assets $40,000 $150,000 $190,000

Net Assets, Beginning of Year $4,300 $0 $4,300

Net Assets, End of Period $44,300 $150,000 $194,300

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Each line item in your statement of activities should align with items
in your budget. Therefore, you can reference this sheet when creating
your annual budget document. Plus, you can check this form to ensure
the organization is on track with its actual budgeted expenses. Each
document will help inform the other throughout the year and ensure your
planned and actual expenses and revenues are aligned.

When considering growth and opportunities for the future, your

accountants should review the information in this form to see how
financially sustainable programs are.

Statement of Financial Position

The nonprofit statement of financial position is parallel to the for-profit
balance sheet. This statement outlines the nonprofit’s assets, liabilities,
and net assets to help organizations gain an understanding of their
general financial health.

When the statement of financial position is complete, it looks something

like this:

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 Assets 2018 2019
Cash and Cash Equivalents $250,000 $240,000

Contributions Receivable $50,000 $45,000

Prepaid Expenses $2,000 $1,750

Property and Equipment $75,000 $75,000

Total Assets $377,000 $361,750

Liabilities
Payables $125,000 $120,000

Debt $55,000 $45,000

Other $15,000 $15,000

Total Liabilities $195,000 $180,000

Net Assets
Without Donor Restrictions $130,000 $120,000

With Donor Restrictions $52,000 $61,750

Total Net Assets $182,000 $181,750

Total Liabilities and Net Assets $377,00 $361,750

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From this statement, you can calculate other metrics like your months of
LUNA (liquid unrestricted net assets). This calculation is your property
and equipment assets subtracted from your total unrestricted assets and
then divided by your average monthly expenses. This metric shows how
sustainable your organization is based on how well your assets can cover
your expenses.

In the example above, the total unrestricted assets are $120,000, and the
total property and equipment assets equal $75,000. Then, if you subtract
the liabilities for the year by 12, you can estimate the average monthly
expenses to equal $15,000. Therefore, to calculate the nonprofit’s months
of LUNA, you would use the following equation: ($120,000 - $75,000) /
$15,000.

The resulting months of LUNA are equal to: 3 months. In general,

nonprofits should aim to have about 3 months of LUNA to be healthy. Less
than 3 months means that the organization should find expenses to cut or
new ways to earn more revenue. More than 3 months of LUNA means your
organization has room to expand its programs, staff, etc.

Statement of Cash Flows

Your nonprofit statement of cash flows shows how cash moves in and out
of the organization during a set period of time. This statement is divided
into three sections that separate the types of organizational activities.
These three sections are the operational activities, investing activities,
and financing activities.

When you’ve completed the statement of cash flows, the resulting report
will look something like this:

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 Cash Flows From Operating Expenses

Cash Received From Contracts $50,000

Cash Received From Contributions $250,000

Cash Paid to Employees $275,000

Net Cash From Operating Expenses $25,000

Cash Flows From Investing Activities

Equipment Purchases $5,500

Net Cash From Investing Activities $5,500

Cash Flows From Financing Activities

Credit Card Payments $4,000

Loan Payments $7,500

Net Cash From Financing Activities $11,500

Increase (Decrease) In Cash $8,000

Cash at The Beginning of The Year $2,500

Cash at End of Year $10,500

Understanding how cash moves in and out of the organization will help
your nonprofit get a better sense of the cash on hand throughout and after
the year ends. Not only that but reviewing this report will also provide
insight into your nonprofit’s fundraising and spending habits, helping you
develop more accurate budgets over time.

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Statement of Functional Expense
The nonprofit statement of functional expense reports your nonprofit’s
types of expenses, placing those expenses in specific categories
according to how they were used. These categories include the expenses
used for programs, administrative activities, and fundraising.

When this form is complete, your statement of functional expenses will

look similar to this:

Program
Administration Fundraising Total
Expenses

Salaries and Wages $112,500 $22,500 $15,000 $150,000

Rent and Utilities $37,500 $7,500 $5,000 $50,000

Insurance $15,000 $3,000 $2,000 $20,000

Insurance $11,250 $2,250 $1,500 $15,000

Fundraising $0 $0 $5,000 $5,000

Travel Expenses $500 $0 $0 $500

Postage $1,000 $1,000 $0 $2,000

Totals $177,75 $36,250 $28,500 237,500

Not only do each of the document’s categories help nonprofits better

understand where their hard-earned money is going, but the document
itself can be a helpful reference when tax season comes along. Since 2017,
nonprofits are required to disclose the nature of their expenses in their
annual Form 990, and the categories noted in your statement of functional
expense align perfectly with those in the form.

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Nonprofit Financial
Tax Forms

If you’ve worked with an organization since its inception, you might

remember filing your articles of incorporation, writing your bylaws, and
filling out your Form 1023. After the form was filed and the IRS reviewed
your initial paperwork, you may even remember celebrating when you
were granted your official 501(C)(3) status.

Official 501(C)(3) nonprofit organizations aren’t required to pay federal

taxes on an annual basis as individuals and companies are. All of their
money should be invested back into the organization, which is why the
federal government provides this tax break. That’s why, instead of paying
taxes, nonprofits must disclose their finances to both the IRS and the
public to ensure they’ve allocated funds appropriately.

The annual tax form completed by nonprofits to disclose their finances to

the IRS is known as the annual Form 990.

Form 990s provide places for nonprofits to disclose information such as

the organization’s revenue, their highest paid employees’ salaries, and

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how their money was generally allocated throughout the year. There are
three different types of Form 990s that your organization may choose to
file depending on your annual gross revenue:

• Form 990N. This is the form available for the smallest of

organizations, with annual gross revenue of less than $50,000. It’s
an eight-question, electronic form and simply asks some identifying
questions as well as confirmation that the organization’s revenue
was less than the required amount.

• Form 990EZ. This form is like the middle child between the 990N
and the standard Form 990. It’s reserved for nonprofits with
annual revenue between $50,000 and $200,000 annually. This is
a four-page form that requires your nonprofit to record financial
information from your various programs, itemize grant information,
and more.

• Standard Form 990. The standard Form 990 is required for all
organizations that have over $200,000 in gross receipts annually.
It’s an eight-page form that asks for details regarding your
nonprofit’s mission, funding, fund allocation, and accomplishments
throughout the year.

The last form is called the Form 990PF, but this one is reserved for
private foundations and must be filed by all organizations under that
classification no matter the gross receipts.

Your nonprofit should also consider the forms that your organization
needs to provide for your staff members and contractors.

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Nonprofits need to provide the standard W2 for employees to understand
their individual income and file their personal income taxes. For
contractors, nonprofits should also keep tabs on to whom they owe a
form 1099. These forms must be provided for anyone who meets all of the
following criteria:

• Is not an official employee of the organization

• Received payment of at least $600 from your organization for a

service they provided

• Received that payment as an individual, partnership, vendor, or

estate.

To summarize tax season, nonprofits need to take two primary

considerations into account. The first is how they compile their Form 990
to report on the organization’s revenue to the government. The second is
how they can provide the required documentation to individuals who work
at the organization and will use those forms to file individual tax returns.

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Financial Audits
for Nonprofits

When individuals or companies are audited by the IRS, the government is

generally looking to ensure they paid the taxes required of them. However,
nonprofit organizations are exempt from paying taxes, so why should they
be audited?

Even if nonprofits aren’t audited by the IRS, financial auditing is still

essential to nonprofit accounting processes.

Nonprofits need to seek out auditors to inspect their systems rather than
relying on the IRS to investigate their financial information. Nonprofits
conduct audits to ensure they’re using their funds as they promised
to donors and stakeholders as well as to ensure GAAP practices are
followed.

While there are some nonprofits that may conduct audits regularly simply
for the purpose of self-accountability and improvement, there are some
occasions when organizations are required to conduct audits. Some of the
reasons nonprofits may be required to conduct an audit if it’s dictated by:

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 • Your bylaws. Some nonprofit bylaws require the organization
to conduct an annual or biannual audit to ensure financial
accountability.

• The state. When states help fund nonprofits, they may require
that organization to conduct an audit if they accept over a certain
amount (usually $50,000).

• Federal requirements. If the federal government provides funding

for your nonprofit, they may also require your organization to
conduct an audit. This is specifically if your nonprofit accepts over
$750,000 in federal funding.

• Grant application requirements. Grant funders want to ensure the

nonprofits they contribute to are using the money responsibly,
so they may require your nonprofit to conduct a financial audit to
ensure trustworthiness, transparency, and effective management.

The process to conduct an audit can take about eight to twenty weeks.
Generally, this is what the timeline breakdown looks like:

Time to Complete Audit Activity

4 to 12 weeks Select an auditor

2 to 4 weeks Prepare for your audit

2 to 4 weeks Conduct the audit

Immediately after the audit Incorporate audit recommendations

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Let’s take a look at what occurs during each of these stages:

Select an Auditor
When it comes to selecting an auditor, your nonprofit should conduct
research to ensure you’re getting the most out of the experience. Start your
research by asking your accountant for auditing firm recommendations.
You can also ask other nonprofit professionals you have good
relationships with for other recommendations. Each party should be able
to recommend a few auditors that they trust.

Once you have an initial list of prospective auditing firms to analyze, you
should ask questions that help create criteria by which you can narrow
your selection. These types of questions include:

• What percentage of the firm’s clients are nonprofits?

• How long will the auditing process take?

• What is the fee structure for the firm?

When you’ve narrowed your list and have a final few to be evaluated, write
a request for proposal (RFP) to send to the firms. From the proposals, you
can determine which firm will be the best option for your organization.

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Prepare for Your Audit
When you’ve selected your auditing firm, you can start preparing for the
audit process. The checklist below should help your organization ensure
you’ve completed all of the necessary standard actions before the audit
takes place.

 Reconcile all bank accounts.

 Review uncleared transactions.
 Review your nonprofit’s vendors.
 Review customers’ or members’ payments.
 Review undeposited funds.
 Look for coding errors.
 Review your capitalization.
 Review your account balances.
 Review your accounts receivable and payable.

Auditing is much more challenging if your organization has outstanding

transactions and an untidy system. This checklist is focused on ensuring
good data hygiene before the auditor arrives.

You’ll also receive a Pull-by-Client (PBC) from your auditor. This will
contain a list of reports and statements your auditor will need to have
access to in order to conduct the audit. Collect each of the required
statements to ensure you provide everything they need.

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Conduct the Audit
During this stage, the auditor will review your statements, reports, and
other information. Be sure to answer any questions your auditor might
have during this time and provide any additional resources they require.

Incorporate Audit
Recommendations
After the audit is complete, your nonprofit auditor will write a “letter to
management” with the results from the audit. Read through this letter
carefully and compile any questions you have for the auditor to ask them
before they leave.

You’ll need to present this letter to your nonprofit’s board of directors,

so make sure you have all of the information you need to answer their
questions.

The letter itself will have two primary components:

• Material internal control issues: These are the issues that

nonprofits should address right away as they could impact the way
your nonprofit records financial information or security issues.

• Operating inefficiencies: Inefficiencies are not immediate problems

for the nonprofit, but they’re issues that could become major
problems in the future. These red flags should be addressed,
although with less urgency than the material issues.

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Accounting and Grant
Management

When you craft your annual budget, you’ll likely find that a major source of
your nonprofit’s revenue comes from grants. Grants are a great source of
funding for nonprofit organizations, but they must be managed carefully.

Where Grants Come From

Grants often come from a number of different sources, including:

• Governing entities

• Public charities

• Community foundations

• Family foundations

• Private foundations

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While some grantmaking organizations will award unrestricted funds
that can be allocated to whatever your organization needs most (usually
government grants), these are in short supply. More often, grantors have
restrictions on the funding they provide. The monies, when awarded, can
only be used for the purpose outlined in an organization’s grant proposal.

Writing a Grant Proposal

The first step to writing an effective grant proposal is rereading the
instructions provided by the grantor. Each grantor requires slightly
different details to be included in the grant proposal itself. The quickest
way to a rejected proposal is failing to include all of the required details in
your proposal.

After you’ve read the instructions several times and feel confident that you
understand what needs to be included in the proposal, you should make
the decision easy for the funder to choose your organization by:

• Telling your nonprofit’s story in a way that tugs at your reader’s

heartstrings without losing focus on the funder’s goals. Dive into
the background of your organization while looking for opportunities
to highlight where the goals of your organization align with the
mission of the funder.

• Getting specific about your need for funding. Those reviewing your
grant want to know you have a specific plan for the money if they
award it to you. Choose one goal you’d like to accomplish with the
grant money and get specific about how you’ll use it to further your
mission.

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 • Asking for feedback from a third-party individual. Ask someone
outside of your organization or industry to review your grant
proposal to ensure it’s compelling and that you’ve followed all
of the instructions to a tee. This simulates having someone less
familiar with your mission (like the funder) reading over the
proposal for the first time.

One of the best ways to make sure your proposal stands out is to build
relationships with grant-making organizations. Before you submit your
proposal, reach out to the grant program manager to ask if they have time
to chat about what they’re looking for in a proposal.

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Recording Grant Funding
When you win grants, you’ll need to record the monies in your accounting
system. This can become rather confusing depending on the types of
grants you receive. In general, grants fall under three categories, and each
must be recorded differently:

1. Unconditional Grant: These are monies provided with no restrictions,

so your organization can use the funds however you see fit. When
the grant is awarded, your nonprofit will go ahead and record these
monies as revenue (even before they hit your bank account).

2. Grants with Contingencies: These grants are provided as long as

your nonprofit fulfills certain conditions required by the grantor.
Once you meet their requirements, you’ll receive an installment of
the grant and over time receive the full funding. You’ll record these
monies at the time you award them. Therefore, when you get the
award letter, you’ll record the first installment. Then, you’ll record
each further installment when you receive it.

3. Reimbursable Grants: With these types of grants, you’ll receive

the grant funds only after you’ve incurred the costs of the program
you’re funding. You’ll pay for the costs initially, then the grantor will
pay you back the funds. In the case of these grants, you’ll record
the expenses as they occur, then have the funds reimbursed after
you’ve received them.

This means that if your nonprofit receives multiple types of grants,

you’ll need to record them all on slightly different timelines. The various
timelines you need to keep up with in regard to grants is why tracking your
various grants can become a challenging job.

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Tracking Your Grants
As we mentioned, you might have a number of different timelines
associated with recording your grant monies. However, that’s not the only
timeline you'll need to worry about when it comes to grant management.
You’ll also need to report back to each grantor about how you’re using the
funding.

This means you need to accurately track how each grant is used for your
mission and report back on the timeline requested by each grantor. We
recommend that your organization set up a few systems to keep yourself
organized:

• A calendar. Make a comprehensive calendar with information

about grant proposal due dates, reporting due dates, and expected
installments if applicable. Check this calendar regularly to ensure
you never miss an important deadline.

• A grant budget. Create a budget that allows you to compare the

projected and actual flow of grant funds at your organization. Be
sure to note the restrictions on this funding and allocate the money
only toward what the grantor has approved.

Accepting tons of grants without an effective system in place to track

them is a recipe for disaster. Instead, accurately track the funding as it
enters and leaves your organization so you can return to grantmaking
organizations with detailed reports. This will also help you create a
positive reputation in the grantmaking world, possibly leading to more
grants in the future!

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Why Jitasa?

The experts here at Jitasa are here to help your nonprofit manage
all aspects of your bookkeeping and accounting. We’ve worked with
nonprofits of all sizes from across the country, so we’ll help you manage
any new challenge or situation that may arise.

Jitasa is a full-service bookkeeping and accounting firm that specializes

in helping nonprofits better manage their finances.

Our team of expert accountants will help your nonprofit ensure correct and
secure finances. In addition, we’ll provide you with benefits such as:

• A fully-staffed accounting team. When people work as a team, more

gets accomplished. A full team of accountants will be on your side
when you work with Jitasa, allowing you to do more.

• Access to experienced professionals. Jitasa’s years of experience

mean there are very few issues our team of professionals is
unfamiliar with. When you have questions or concerns, we’ll have
answers!

• Setup with accounting software. Our experts will help your

nonprofit get set up with software on Quickbooks and even cover
the fee ourselves! If you’re already set up on another platform,

34 | THE BEGINNER’S GUIDE TO NONPROFIT ACCOUNTING

 no worries. Our experts are familiar with a range of accounting
solutions and can help you maintain them.

• Enhanced internal controls. Financial security is a matter of pride

for our accounting team. We’ll ensure your systems are secure, safe,
and well-organized at any given time with strict internal controls.

Outsourcing your accounting services is rarely a poor investment for

small and mid-sized nonprofit organizations. Not only do you save
time and money, but you also have access to financial guidance and
recommendations from experienced professionals in the industry.

Reach out today to learn more about how Jitasa can help solve your
nonprofit’s accounting needs.

35 | THE BEGINNER’S GUIDE TO NONPROFIT ACCOUNTING

 Let the
accounting
experts at Jitasa
manage your
finances.
Talk to an expert today to see
how we can help!

LEARN MORE

36 | THE BEGINNER’S GUIDE TO NONPROFIT ACCOUNTING