Lesson 1 – Nonprofit Accounting Practices

Regardless of your nonprofit’s size, it is extremely important to implement nonprofit accounting methods and principles for financial management of your nonprofit. Minimizing the importance of proper fiscal management is guaranteed recipe for failure.

Nonprofit accounting is critical for long-term survival and sustainability. The difference between for-profit and nonprofit accounting is simple. The primary goal for a for-profit business is to make money. For a nonprofit, success is measured in how it fulfills its mission. It all comes down to how the money raised is used.

As a nonprofit, there is not just one bottom line. There is a double bottom line. The first one reflects fulfilling the stated mission. The second one refers to having the necessary funding to support the mission now and in the future. This is why nonprofit accounting is integral in becoming sustainable and achieving your goals.

Having sound accounting practices will ensure that management, your board of directors and your funding sources can make informed business decisions. At its most basic level, accounting is a mechanism to track how much money is coming in from revenue and how much is going out for expenses. A nonprofit accounting system will provide the information needed to create reports to show the organization’s financial transactions and net worth.