Nonprofit accounting that survives the audit, the board, and the Form 990.

Nonprofit accounting operates under a different framework — FASB ASC 958 — and answers a fundamentally different question. For-profit accounting asks “did the business make money for its owners?” and produces an Income Statement and Statement of Equity. Nonprofit accounting asks “did the organization steward restricted resources correctly and how much did mission delivery actually cost?” and produces a Statement of Activities (instead of an Income Statement) and a Statement of Functional Expenses (showing every dollar allocated across Program, Management & General, and Fundraising). Net assets replace equity. Contributions and grants replace sales. Restricted vs unrestricted classification replaces simple revenue recognition. Functional expense allocation is required, not optional. The result: a generic for-profit bookkeeper running nonprofit books produces statements that don’t match what auditors, boards, donors, and Form 990 all need.

Fund accounting is the framework nonprofits use to track resources separately based on their intended purpose. Under FASB ASC 958 (effective 2018, replacing the older three-category SFAS 117 model), net assets are classified into two categories: without donor restrictions (the nonprofit can use them for any mission-related purpose) and with donor restrictions (donor specified a purpose, time, or both). Within with-donor-restrictions, further internal tracking is needed for each restricted purpose — building fund, scholarship fund, specific program fund, endowment principal, and so on. We configure QuickBooks (typically QuickBooks Online Plus or Advanced, or QuickBooks Enterprise for larger organizations) with the chart of accounts and Class structure that supports proper fund accounting, track restricted contributions from receipt through release as purposes are satisfied, and produce the Statement of Activities with the two-category presentation that GAAP requires.

Yes. Grant accounting requires distinguishing between conditional and unconditional contributions (different recognition timing), tracking restricted purposes and time periods, and for federal awards complying with the Uniform Guidance (2 CFR 200) cost principles and reporting requirements. Federal grants in particular have specific allowable cost rules, indirect cost rate considerations (the de minimis 10% indirect rate or a negotiated rate), procurement standards, sub-recipient monitoring, and Single Audit thresholds (currently $750,000 in federal expenditures triggering a Single Audit). We handle the operational grant accounting and compliance documentation; the Single Audit itself, when required, is performed by a qualified independent auditor — we prepare the books to be audit-ready and coordinate with your auditor on the engagement.

Functional expense allocation is the requirement that every expense incurred by a nonprofit be classified across three functional categories: Program services (direct mission-delivery costs), Management & General (administrative overhead), and Fundraising (development and donor cultivation costs). The Statement of Functional Expenses presents this allocation and is required by GAAP for all nonprofits. The allocation matters operationally because boards, donors, watchdog organizations (Charity Navigator, GuideStar/Candid), and Form 990 all use Program % as a key indicator of nonprofit health — most donors look for 70%+ of expenses going to Program. Allocation methods include direct identification (a program staffer’s salary goes 100% to Program), time studies (admin staff who split time across functions), and reasonable allocation bases for shared costs like rent and utilities. We configure the allocation methodology, capture the allocation monthly, and produce the Statement of Functional Expenses as part of the regular reporting package.

No. Form 990 is the annual information return filed by tax-exempt organizations with the IRS, and its filing requires CPA or EA credentials. We don’t file Form 990 ourselves — we maintain the books in a way that supports clean Form 990 preparation by the organization’s CPA or EA. Our role: produce audit-ready and 990-ready financials, organize supporting documentation in the structure the 990 preparer needs, answer operational questions during 990 preparation, and coordinate cleanly with the CPA so the filing happens on schedule (May 15 for calendar-year filers, with extensions to November 15 available). This separation protects the organization (regulated work performed by appropriately credentialed professionals) and us (we don’t drift into work outside our competence).

Yes. In-kind contributions — donated goods, donated services, or donated use of facilities — must be recognized at fair value when received under GAAP, with corresponding expense or asset recognition. Donated services are recognized only if they create or enhance non-financial assets (like a contractor donating skilled construction work) or if they require specialized skills and would have been purchased if not donated (like a CPA donating audit prep work). Routine volunteer services are not recognized for GAAP purposes even though they’re tracked for management purposes. We configure in-kind contribution accounts, work with the organization to value donations correctly, and ensure the in-kind activity flows correctly to both the Statement of Activities and the Statement of Functional Expenses (since in-kind expenses also need functional allocation).

Most nonprofits over a state-specific threshold (typically between $500,000 and $2 million in revenue, depending on the state) are required to obtain an annual financial audit. Federal grant recipients spending more than $750,000 in federal funds require a Single Audit under Uniform Guidance. Audit-ready books mean: every account reconciled monthly, all journal entries supported by documentation, fund-level and functional-expense breakdowns produced from the books rather than spreadsheets, fixed-asset register maintained, grant compliance documented, and all required GAAP statements producible on demand. We maintain books to audit-ready standards throughout the year (not just at year-end), coordinate with the independent auditor on the engagement, and provide the schedules and supporting work the auditor needs. The audit opinion itself is rendered by the auditor; our role is making the audit run smoothly and efficiently.