Tracking revenue and allocating expenses can be a daunting task for nonprofits. Our advisor answers questions on nonprofit revenue and expenses.
Editor’s Note: The following questions and answers represent real world challenges nonprofits encounter managing nonprofit accounting everyday tasks. Our advisor column is intended to provide basic advice on questions related to the topic. Answers to these questions are simply the view and opinion of our nonprofit accounting pros. Nonprofit Accounting Pro shall not be liable, answerable or accountable for any loss or damage resulting from the advice given by our advisor.
How to Handle Nonprofit Revenue and Expenses
Answer: When recording the purchase of an oven for $300, that is valued at $2000, you would record the purchase price of $300 and then record an inkind donation for the difference. The donor’s deductible amount is the difference between the purchase price and the value.
Answer: Yes, this is absolutely necessary, since all nonprofits need to allocate all expenses by functional area – Support Services, which includes Management and General and Fundraising, and Program. It is essential to allocate all expenses, including salaries and payroll taxes to the appropriate functional area. If your accounting software cannot handle this, then it would be worthwhile to look at an accounting system that will allocate the costs automatically for you, like Araize’s FastFund Online.
Answer: Your CPA is complicating matters for you. The funds received for reimbursement of expenses should be credited to the original expense account, reducing the expense. You do not need to create a contra-expense account.
Answer: When recording the recognition of deferred revenue, you can make a single entry at the end of the month as a summary of the entire month’s activity.
Answer: If your invoices are for services rendered for income, the the posting should be to your Accounts Receivable account. If you receive a pledge for a charitable contribution and record the pledge, then the posting should go to the Pledge Receivable account. In QuickBooks, your bills have items that are linked to income accounts. If you record pledges, then you would have to set up an item for Charitable Contributions that is linked to your Donations account.
In the normal course of navigating the myriad of issues related to nonprofit revenue and expenses, you may have encountered some of these questions. It is essential to follow compliant nonprofit accounting methods to ensure accountability to your funding sources.
We hope our answers provide clarification. We welcome your questions and feedback. Feel free to comment below.