The Importance of Accounting and Bookkeeping For Your Not-For-Profit and the Top 6 Things You Need To Do

Not-for-profits are dedicated to improving the quality of life for people in their communities and beyond. In this article, we discuss our top tips for nonprofit accounting and bookkeeping, and why accurate, up-to-date records are important to an organization’s success.

December is one of the busiest times of the year - not just for shoppers and retailers, but also for not-for-profit organizations (NPO). Donors often feel generous as the giving or holiday season approaches, and many will also be looking to make year-end donations for tax relief.

Because nonprofit organizations rely heavily on donations like these to further their mission, accounting and bookkeeping is a very important part of running a successful NPO.

In other words, proper accounting and bookkeeping ensures financial accountability, facilitates grant reporting, ensures legal compliance, and supports informed decision-making. These practices are essential for the financial health and stability of a nonprofit organization and for helping the organization achieve its mission and serve the people it was established to help.

With the season of giving behind us and tax season quickly approaching, we take a look at the top accounting and bookkeeping tips for not-for-profit organizations in Canada.

1. Keep accurate and organized financial records.

It is important for not-for-profit organizations to keep detailed and accurate financial records in order to remain compliant, transparent and accountable. This includes tracking income and expenses, keeping receipts and invoices, and recording transactions in an accounting software or on paper.

2. Follow Generally Accepted Accounting Principles (GAAP).

GAAP is a set of guidelines for financial reporting that helps ensure consistency and transparency in financial statements. It's important for not-for-profits to follow these principles to maintain the trust of donors and other stakeholders.

3. Prepare financial statements regularly.

Not-for-profits should prepare financial statements at least annually, and more frequently, if needed. These statements should include a Statement of Activities, or Statement of Operations (income statement) and a Statement of Financial Position (balance sheet), as well as a Statement of Changes in Net Assets and a Statement of Cash Flows.

Not only are financial statements necessary to maintain tax exempt status, but they also provide a snapshot of the organization's financial health. It is important to prepare these statements regularly to ensure that the organization is on track to meet its financial goals.

4. Understand the difference between revenue and expenses.

Not-for-profit organizations generate revenue through donations, grants, sponsorships and other sources. It is important to properly categorize and track these sources of revenue and understand any restrictions or conditions that may be attached to them, ensuring that they are being used for their intended purpose.

Expenses, on the other hand, are the costs associated with operating the organization, such as rent, utilities, and staff salaries, and these must also be accurately recorded.

5. Adhere to government regulations and reporting requirements.

Not-for-profit organizations in Canada are required to file annual tax returns and other reports with the Canada Revenue Agency (CRA). It is important to understand and comply with these reporting requirements to avoid any penalties or issues with the CRA.

6. Seek professional advice.

If you're not familiar with accounting and bookkeeping, it may be helpful to seek the advice of a professional accountant or bookkeeper. They can help ensure that your financial records are accurate, complete and up-to-date.

BONUS TIP: Outsource your accounting and bookkeeping.

As a not-for-profit, your primary focus lies in making the world a better place. As your NPO grows, it often becomes difficult to balance your mission with maintaining your books. In addition to this, finding and keeping skilled financial experts is a difficult task itself.

Outsourcing is not only a great solution for both of these problems, but is also one of the best investments you can make for your not-for-profit as it puts you in touch with a team of accounting experts for a fraction of the cost.

Cayde Accounting and Tax has decades of experience with charities, churches, community associations and other nonprofit organizations. With our past experience and today's technology, we optimize your accounting processes and provide the CFO level guidance your nonprofit deserves.

Contact us to see how we can help. Our team would be more than happy to help your organization further its mission.

Published Date
January 10, 2023
Not for Profit