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Nonprofit Accounting

Accounting practices specific to tax-exempt organizations, emphasizing fund tracking, donor restrictions, and accountability rather than profit.

Nonprofit Accounting Definition

Nonprofit accounting follows the same fundamental principles as for-profit accounting (GAAP) but with key differences: nonprofits track net assets instead of equity, use fund accounting to separate restricted and unrestricted money, and produce different financial statements.

Key Differences from For-Profit

  • Net assets instead of owner's equity ("With Donor Restrictions" and "Without Donor Restrictions")
  • Statement of Activities instead of Income Statement
  • Statement of Financial Position instead of Balance Sheet
  • Statement of Functional Expenses — required, breaks costs into Program, Management, and Fundraising
  • No shareholders — accountability is to donors, grantors, and the public

    • Core Requirements

  • Track restricted funds separately from unrestricted
  • Maintain functional expense allocation
  • File Form 990 (or 990-EZ/990-N) annually with the IRS
  • Follow ASU 2016-14 presentation standards

    • How It Works in QuickBooks

    QBO supports nonprofit chart of accounts. Use Classes to track programs/grants. Set up separate income accounts for restricted and unrestricted revenue. Run Statement of Activities and Statement of Financial Position reports.

    FAQ

    Q: Can a nonprofit use regular QuickBooks?

    A: Yes, but you need to customize the chart of accounts and use Classes for fund tracking. QBO doesn't have a native nonprofit mode — it's all in the setup.

    Related Terms

  • Net Assets
  • Restricted Fund
  • Fund Accounting
  • GAAP

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