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Navigating Non-Profit Accounting

Navigating Non-Profit Accounting in the U.S: A Comprehensive Guide, Challenges, and the Role of Outsourcing

US NPO ACCOUNTING-  A Complete Guide

Not-for-profit Organisation (NPO) Accounting outsourcing is a system of recording and reporting all business transactions that are considered NPOs. It involves choosing the best accounting method, understanding compliance and tax responsibilities, and creating and reporting the figures in the appropriate financial statements.

NPO’s entities focus more on the accountability aspect of accounting as they have to stay accountable to their donors and contributors. In the U.S., non-profit accounting guidance is established by the Financial Accounting Standard Board and follows Generally Accepted Accounting Principles.


The major characteristics that distinguish a not-for-profit entity accounting from a profit enterprise accounting are: –

  1. Fund-based accounting:– Non-profits will commonly follow fund-based Accounting outsourcing to keep their money organized and to track that they only spend funds on what they are designated for. Non-profits will commonly separate their money into groups such as Restricted funds, Temporarily restricted funds, unrestricted funds.
  2. Financial Statements:– Non-profit financial statement must align their expenses with donations belonging to the same class, so donors get the idea about how much fund is used against which expense and for which designated fund.
  3. Non- Distribution Constraints:Unlike for-profits, non-profits are not required to distribute their net earnings to the leaders or donors of the organization. They can use their net earnings to provide services/ benefits to the society at large.


Basis of NPO Accounting

  • Non-profits can prepare their accounts on the basis of the accrual or cash method that completely depends on the decision taken by the leadership team of non-profits.
  • Non-profit entities usually put emphasis on Accounting outsourcing. The leadership or finance team prepares the budget planning document based on the historic spending habits of the organization. That helps in reporting the budget to actual numbers to the donors against the evidence of a reimbursable contribution grant contract. Budgeting is a very important part of non-profit organizations’ accounting. This is because non-profits usually have very limited sources of income and must always have tight control over their spending.
  • Non-profits bifurcated their expenses into Program Services, General and administrative and fundraising and allocate these heads amount against revenue (Donations) based on restricted, temporarily restricted, and unrestricted funds.

Challenges in Non-profit Accounting

1. Grant Tracking: – Non-profits receive grants from many sources, making it challenging to keep track of when money is to be collected and how often. Non-profits must keep track of their grants otherwise they could lose out on grants in the future. The grant sender will need regular updates to continue funding. Accountants need to find a good way to track grant funds separately from other funds to track that they are covering the correct expense. Sometimes, professionals need to set up separate checking accounts for each class of funding.

2. Preparing the correct financial statements: – Non-profit accounting comes with its own set of terminology, extending to the financial statements. Along with the basic set of financial statements, additional reports also need to be prepared according to the donor’s requirement such as donation tracking and budget to actuals report. These all need to be maintained and updated on regular basis.

Why you should look for an Outsourced non-profit accounting firm?

Managing the finances of non-profits is just not an easy task, it requires professional insight and time as well. Accounting outsourcing non-profit accounting to professional and experienced firms can help non-profits overcome the challenges in non-profit accounting. An experienced professional accounting firm can also provide good strategic advisory services, outsourcing the accounting domain to firms for non-profits, and help mission-driven non-profit organizations to reach their full potential.

Modern-day NPO accounting requires the usage of modern accounting software that helps in doing everyday tasks like bank reconciliation, vendor payments, invoicing, and expense reporting. Using modern accounting software through professional accounting firm allow non-profit organizations to control all financial tasks from a central dashboard.

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