If you run a non-profit organisation (NPO), your accounting responsibilities are different from those of for-profit businesses. Even though there are differences, there’s no denying the importance of understanding accounting fundamentals.
In order to continue pursuing your cause and operating the organisation, it’s crucial to have an accounting structure that’s robust and a process that works.
This guide is for the serious NPO that wants to dial in on their money matters and grow their impact for years to come.
From what your NPO should look for in accounting software to financial reporting, let’s take a look at some accounting basics for non-profit organisations in Singapore.
A Non-Profit Organisation Is A Business Too
A nonprofit organization is sometimes called a not-for-profit entity, especially in the world of finance. Unlike conventional businesses, your organisation operates to fulfil a charitable, educational, religious, or scientific purpose.
However, even though making a profit isn’t your primary function, you still handle money.
All of this has to be accounted for by law, and for the peace of mind of anyone who has an interest in helping your cause.
4 Steps to Basic Accounting For a Non-Profit Organisation
1. Choose an accounting method
Like any business, your NPO needs a healthy cash flow to run daily activities. You need to earn enough money to pay utility bills, rent, employee wages (if any), fund programmes, etc.
Everything incoming and outgoing must be recorded. There are two ways to stay organised. You can either choose Cash Basis Accounting or Accrual Accounting.
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Cash-basis accounting is a system where you record expenses or income when you actually pay or receive them, not when the transaction takes place.
Accrual accounting is when you record transactions when they take place. This method uses a double-entry bookkeeping system.
For example, you run a nonprofit where members must pay dues. Using the cash-basis accounting system, you record payment when you actually collect dues from members.
If your nonprofit collects membership dues, you would record income when you send the invoice, even though you haven’t physically received the money. You would typically Debit cash and Credit membership dues.
2. Track and record meticulously
A non-profit organisation is still privy to audits so there’s a need to upholding a minimal accounting standard. For this reason, it’s vital that you not only regularly review your financials, but also keep a detailed record of fund movements.
Knowing that your records are up-to-date will also give you peace of mind every time your board of directors want to conduct a review.
With every transaction (no matter how small) tracked, you can safeguard your organisation from fraud, theft and unauthorised activities.
The greater your transparency, the greater the trust others will have in you.
Record all incoming funds
NPOs can have many different sources of revenue. Each of these must be accounted for:
- Volunteer Contributions
- Membership dues
- Merchandise sales
3. Accurate and appropriate financial reporting
For-profit businesses use three main financial statements: Profit and Loss Statement (Statement of Comprehensive Income), Balance Sheets (Statement of Financial Position) and Statement of Cashflows.
Non-profit organisations use similar financial statements, just that they have different accounting categories: Statement of Financial Activities, Balance Sheets and Statement of Cashflows.
The statement of financial activities shows your NPO’s income and expenses over a specific period of time.
A balance sheet gives you a screenshot of the health of your NPO during a given period of time. It shows your assets, liabilities and net assets (unlike for-profits where this would be equity).
Lastly, the statement of cash flows shows you how much money is entering and leaving your organisation’s accounts during a specific period of time. This statement organises cash in three main categories:
- Operating activities
- Investing activities
- Financial activities
You can have either a positive cash flow or negative cash flow in your business.
4. Choose good accounting software for your NPO to keep an eye on the numbers
Just like any other business, a non-profit organisation is best run with someone dedicated to the accounts. With the right accounting software for your NPO, you’ll be able to do this easily. Here are some features to look out for. (See all our features here)
Having reporting tools and a dashboard allows you to have a clear, big picture view of your financials so you can 1) make better strategic decisions 2) spend less time on accounting and more time impacting lives.
Collaborate anytime, anywhere
Many NPOs are tight on money and don’t have a fixed office space with tech infrastructure, so their employees work remotely.
Cloud-based accounting makes perfect sense in cases like these where your bookkeepers and accountants can update the accounts whenever they need to, wherever they are.
Automate time-consuming tasks
If you’re running a non-profit business in your spare time, have volunteers who’re helping you with accounting part-time or you just have lots of activities to plan…
… you’ll want software that can handle all the important tasks for you. In one place. In just a few clicks.
This way you’ll get more done in less time.
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Getting Your Accounting In Order
Although you might not sell products and services or focus on profits, as a typical business would, there are still many movements in funds.
Non profit recordkeeping can get a bit challenging. There are many activities going on at the same time and many numerous people involved at any one time.
So it is worth noting that accounting software exists to help your non profit organisation record transactions efficiently, so you don’t have to find a seasoned accountant just to get it done.
By following these 4 steps and carefully monitoring your financial activities, you’ll be able to serve your people well and make a greater difference in their lives.
Ready for an accounting system built specially for small businesses and organisations? Try us for free today.