Bookkeeping for Nonprofits: Key Differences and Best Practices

May 7, 2025

Running a nonprofit organization involves more than just doing good work—it also means keeping clean, accurate financial records. Bookkeeping for nonprofits is unique and comes with its own set of rules, responsibilities, and reporting requirements.

In this blog, we’ll walk through the key differences between nonprofit and for-profit bookkeeping and share best practices to help your nonprofit stay organized, compliant, and mission-focused.

Key Differences Between Nonprofit and For-Profit Bookkeeping

1. Chart of Accounts Structure

Nonprofits categorize transactions differently than traditional businesses. Instead of tracking income and expenses by product or service, nonprofits organize them by funds, programs, and donor restrictions.

- Funds help track where the money is coming from and how it must be used.

- Programs show how resources are being used to support different services.

- Restrictions ensure that donor intentions are respected—such as when a grant must be used for a specific project.

2. Terminology

Some terms used in nonprofit bookkeeping are different from those used in for-profit businesses:

- Revenue becomes contributions, donations, grants, or membership dues.

- Net income becomes change in net assets.

- Owners’ equity becomes net assets, which are divided into unrestricted, temporarily restricted, and permanently restricted funds.

3. Reporting Requirements

Nonprofits must prepare Statement of Financial Position (similar to a balance sheet) and a Statement of Activities (similar to a profit and loss report). These statements are tailored to reflect how the organization uses funds to fulfill its mission.

Additionally, most nonprofits are required to file Form 990 with the IRS annually, which provides public transparency about financial activities, governance, and compensation.

Best Practices for Nonprofit Bookkeeping

1. Use Fund Accounting

Always separate restricted and unrestricted funds. Fund accounting ensures that money is used for its intended purpose, helping you maintain donor trust and stay compliant with legal requirements.

2. Track Every Donation

Maintain clear records of every donation, including donor information, amount, date, and any restrictions. This helps with year-end donor reporting and future fundraising efforts.

3. Reconcile Accounts Regularly

Just like any business, nonprofits should reconcile bank accounts monthly. This helps catch errors early, prevents fraud, and ensures that reports are accurate.

4. Use Nonprofit-Friendly Software

Choose bookkeeping software designed for nonprofits. Look for features like fund accounting, donor tracking, and automated grant reporting. Some good options include QuickBooks for Nonprofits, Aplos, and Wave (for small nonprofits).

5. Stay Audit-Ready

Keep digital copies of receipts, grant letters, and board meeting minutes. Proper documentation is essential for audits, grant applications, and maintaining your tax-exempt status.

6. Train Your Team

Even if you have a bookkeeper, it’s important that your staff and board understand the basics of nonprofit financial management. This promotes transparency and smarter decision-making across the organization.

Final Thoughts

Bookkeeping might not be the most glamorous part of nonprofit work, but it’s one of the most important. With the right structure, tools, and practices in place, you can ensure that your nonprofit stays financially healthy and mission-focused.

How Accredited Bookkeeping Can Support Your Business

At Accredited Bookkeeping, we understand the challenges small businesses face when it comes to managing finances. We’re here to help you streamline your bookkeeping processes, avoid unnecessary financial errors, and gain greater clarity about your financial health. Our services are designed to fit the specific needs of your business, giving you peace of mind while you focus on growth.

marianne@accreditedbookkeeping.com