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Nonprofit Bookkeeping & Accounting for Dummies PDF

365 Pages·2009·6.09 MB·English
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Spine: 0.72 Business/Nonprofit Making Everything Easier!™ Your hands-on guide to keeping great records and keeping your o f i t p r n o nonprofit running smoothly N Open the book and find: B Need to get your nonprofit books in order? This practical (cid:127) T he difference between o guide has everything you need to know to operate your bookkeeping and accounting o k nonprofit according to generally accepted accounting (cid:127) How to maintain a manual or k pbanuriddn gcmieputliecnhsg (m GtoAo frAielPi.n Y) go— uta’ lfxlr oesesm,e p dhreoopcwua rtmione sgnt aftiiynn aognr tgcraiaannl isszateacdtt,ei okmneees pnat nsd, (cid:127) Tk ceoenme pvpiinutagtle ttrhh reien cbgoosro dtko-ks keneopwin wg hsyesnt em eepiNo Bookkeeping & Accounting nn records, and be prepared for an audit. g (cid:127) D o’s and don’ts of managing p (cid:127) Begin with the basics — understand common financial terms, federal grant money &r choose your accounting methods, and work with financial Ao (cid:127) How to prepare for an audit of statements your financial statements cf ci (cid:127) Balance your nonprofit books — set up a chart of accounts, ot (cid:127) I RS Form 990 good practices record transactions, plan your budget, and balance your cash u flow n (cid:127) The most common errors found t (cid:127) Get the 4-1-1 on federal grants — find grants and apply for them, during nonprofit audits i n track and account for federal dollars, and prepare for a grant g (cid:127) How to figure out employee audit payroll deductions and taxes (cid:127) Stay in good standing with Uncle Sam — set up payroll accounts for employees, calculate taxes and deductions, and complete tax forms Learn to: (cid:127) Close out your books — prepare the necessary financial statements, know which accounts to close, and prepare for the Go to dummies.com® (cid:127) Read and understand nonprofit financial next accounting cycle for more! statements (cid:127) Know what to do if you get audited — form an internal audit (cid:127) Keep accurate books committee, follow IRS rules of engagement, and keep an immaculate paper trail (cid:127) Follow nonprofit accounting laws and regulations (cid:127) Comprehend the latest tax changes $21.99 US / $25.99 CN / £15.99 UK Sharon Farris has been involved in the grants industry for more than ISBN 978-0-470-43236-5 ten years. She is the president of Farris Accounting & Consulting Training Services (FACT$) as well as the former president of the American Sharon Farris Association of Grant Professionals (AAGP) Montgomery. President, Farris Accounting & Consulting Farris Training Services (FACT$) 0011__443300662200--ffffiirrss..iinndddd iivv 44//11//0099 1100::0088::2299 PPMM Nonprofit Bookkeeping & Accounting FOR DUMmIES ‰ by Sharon Farris President of Farris Accounting & Consulting Training Services (FACT$) Nonprofi t Bookkeeping & Accounting For Dummies® Published by Wiley Publishing, Inc. 111 River St. Hoboken, NJ 07030-5774 www.wiley.com Copyright © 2009 by Wiley Publishing, Inc., Indianapolis, Indiana Published by Wiley Publishing, Inc., Indianapolis, Indiana Published simultaneously in Canada No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning or otherwise, except as permit- ted under Sections 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online at http:// www.wiley.com/go/permissions. Trademarks: Wiley, the Wiley Publishing logo, For Dummies, the Dummies Man logo, A Reference for the Rest of Us!, The Dummies Way, Dummies Daily, The Fun and Easy Way, Dummies.com, Making Everything Easier, and related trade dress are trademarks or registered trademarks of John Wiley & Sons, Inc. and/ or its affi liates in the United States and other countries, and may not be used without written permission. All other trademarks are the property of their respective owners. Wiley Publishing, Inc., is not associated with any product or vendor mentioned in this book. LIMIT OF LIABILITY/DISCLAIMER OF WARRANTY: THE PUBLISHER AND THE AUTHOR MAKE NO REPRESENTATIONS OR WARRANTIES WITH RESPECT TO THE ACCURACY OR COMPLETENESS OF THE CONTENTS OF THIS WORK AND SPECIFICALLY DISCLAIM ALL WARRANTIES, INCLUDING WITH- OUT LIMITATION WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE. NO WARRANTY MAY BE CREATED OR EXTENDED BY SALES OR PROMOTIONAL MATERIALS. THE ADVICE AND STRATEGIES CONTAINED HEREIN MAY NOT BE SUITABLE FOR EVERY SITUATION. THIS WORK IS SOLD WITH THE UNDERSTANDING THAT THE PUBLISHER IS NOT ENGAGED IN RENDERING LEGAL, ACCOUNTING, OR OTHER PROFESSIONAL SERVICES. IF PROFESSIONAL ASSISTANCE IS REQUIRED, THE SERVICES OF A COMPETENT PROFESSIONAL PERSON SHOULD BE SOUGHT. NEITHER THE PUBLISHER NOR THE AUTHOR SHALL BE LIABLE FOR DAMAGES ARISING HEREFROM. THE FACT THAT AN ORGANIZA- TION OR WEBSITE IS REFERRED TO IN THIS WORK AS A CITATION AND/OR A POTENTIAL SOURCE OF FURTHER INFORMATION DOES NOT MEAN THAT THE AUTHOR OR THE PUBLISHER ENDORSES THE INFORMATION THE ORGANIZATION OR WEBSITE MAY PROVIDE OR RECOMMENDATIONS IT MAY MAKE. FURTHER, READERS SHOULD BE AWARE THAT INTERNET WEBSITES LISTED IN THIS WORK MAY HAVE CHANGED OR DISAPPEARED BETWEEN WHEN THIS WORK WAS WRITTEN AND WHEN IT IS READ. For general information on our other products and services, please contact our Customer Care Department within the U.S. at 877-762-2974, outside the U.S. at 317-572-3993, or fax 317-572-4002. For technical support, please visit www.wiley.com/techsupport. Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books. Library of Congress Control Number: 2009925029 ISBN: 978-0-470-43236-5 Manufactured in the United States of America 10 9 8 7 6 5 4 3 2 1 About the Author Sharon Farris, president of Farris Accounting & Consulting Training Services (FACT$), is an accountant and grant consultant. She is a Certifi ed Grants Manager (certifi ed by Management Concepts) and received her bachelor’s degree in accounting from Troy University of Montgomery, Alabama. During the past ten years, she has provided training and consultation to more than 100 public and private organizations in fi elds such as account- ing, business writing, grant writing, and proposal development. She has developed and taught training certifi cation programs for Auburn University Montgomery and Alabama State University in Montgomery, Alabama. Sharon’s clients have included the U.S. Department of Education, United Way of Alabama, State of Alabama Council for Developmental Disabilities, Montgomery County Board of Education, Montgomery County Sheriff’s Offi ce, Council on Aging, Alabama A&M University, 100 Black Men of Montgomery, Alabama, Faith in Action Outreach Ministries, Grace Christian Academy, and the Montgomery County Historical Society. Sharon provides on-site training in all aspects of accounting, budget analysis, and proposal development. She works with organizations to assess their current funding streams and organizes and develops funding plans to stabi- lize and sustain the organizations. In addition, Sharon serves as the keynote speaker at meetings for organizations and professional associations. To discuss this book or understand how Sharon can work with you to establish, develop, and expand your organization, please contact her at FACT$, P.O. Box 242143, Montgomery, AL 36124, phone (334) 224-6541, e-mail [email protected], or Web site www.thatsfacts.org. Dedication To my beautiful daughter, Keisha, and my mother, Beatrice Rembert. May we continue to share laughter together. Author’s Acknowledgments This fi nal product took a consortium of friends from my inner circle to write and publish. I want to thank many people for making this book possible. First, I want to thank Dr. Beverly Browning for the referral. Thanks to her for connecting me to Acquisitions Editor Stacy Kennedy. I received the e-mail proposal from Stacy Kennedy about the vision for this book on my birthday. Thanks for making that day one to remember. Thanks to Chad Sievers, my project editor, and Vicki Adang, my copy editor, for their guidance, support, and the endless hours they spent working to make this book a complete product. Finally, thanks to my inner circle of friends and professional associates, who helped me cross the fi nish line. Norell Carter, an associate of FACT$, took time away from studying for the CPA exam to work on this book. Thomas Gaither spent countless hours encouraging me to press forward. Thanks also to Wayne “Turkey Leg” Jones, my business partner, for moral support. Finally, I have to thank my family for their continued help and inspiration. Thanks to my sister, Earsie Mack, for understanding and encouraging me. Thanks to my dear sister, Odessa T. Lee, for talking the talk and motivating me to see this book through to its completion. Publisher’s Acknowledgments We’re proud of this book; please send us your comments through our Dummies online registra- tion form located at http://dummies.custhelp.com. For other comments, please contact our Customer Care Department within the U.S. at 877-762-2974, outside the U.S. at 317-572-3993, or fax 317-572-4002. Some of the people who helped bring this book to market include the following: Acquisitions, Editorial, and Composition Services Media Development Project Coordinator: Katherine Key Project Editor: Chad R. Sievers Layout and Graphics: Reuben W. Davis, Acquisitions Editor: Stacy Kennedy Sarah Philippart, Christine Williams Copy Editors: Vicki Adang, Amanda Gillum Proofreader: Toni Settle Assistant Editor: Erin Calligan Mooney Indexer: Christine Karpeles Editorial Program Coordinator: Joe Niesen Technical Editor: Robert Harveywebster, CPA Editorial Manager: Michelle Hacker Editorial Assistant: Jennette ElNaggar Cover Photos: © JUPITERIMAGES/Creatas/Alamy Cartoons: Rich Tennant (www.the5thwave.com) Publishing and Editorial for Consumer Dummies Diane Graves Steele, Vice President and Publisher, Consumer Dummies Kristin Ferguson-Wagstaffe, Product Development Director, Consumer Dummies Ensley Eikenburg, Associate Publisher, Travel Kelly Regan, Editorial Director, Travel Publishing for Technology Dummies Andy Cummings, Vice President and Publisher, Dummies Technology/General User Composition Services Debbie Stailey, Director of Composition Services Contents at a Glance Introduction ................................................................ 1 Part I: Accounting and Bookkeeping Nonprofit Style ...... 7 Chapter 1: The Nuts and Bolts of Nonprofi t Bookkeeping and Accounting ...............9 Chapter 2: Starting with Basic Bookkeeping and Accounting ....................................25 Chapter 3: Introducing Financial Statements ...............................................................43 Chapter 4: Keeping Good Records: Using a Manual System or Computer System .............................................................................................................................59 Part II: Balancing Your Nonprofit Books ...................... 73 Chapter 5: Setting up the Chart of Accounts for Nonprofi ts ......................................75 Chapter 6: Recording Transactions and Journal Entries ............................................87 Chapter 7: Balancing the Checkbook: Donations and Expenses .............................103 Chapter 8: Balancing Cash Flow: Creating an Operating Budget .............................121 Chapter 9: Staying in Nonprofi t Compliance ..............................................................137 Part III: Accounting for Nonprofit Situations ............. 151 Chapter 10: Introducing Federal Grants .....................................................................153 Chapter 11: Tracking and Accounting for Federal Dollars .......................................167 Chapter 12: Getting Ready for the Grant Audit ..........................................................187 Chapter 13: Accounting for Payroll and Payroll Taxes .............................................205 Chapter 14: Doing the Accounting for Tax Form 990 ................................................225 Part IV: Wrapping Up the Books ............................... 241 Chapter 15: Analyzing the Statement of Activities ....................................................243 Chapter 16: Reporting Financial Condition on a Statement of Financial Position .........................................................................................................................253 Chapter 17: Eyeing the Cash Flow Statement .............................................................267 Chapter 18: Organizing the Statement of Functional Expense .................................277 Chapter 19: Closing the Nonprofi t Books ...................................................................287 Chapter 20: Preparing for an Accounting Audit .........................................................301 Part V: The Part of Tens ........................................... 313 Chapter 21: Ten Important Things to Know When Keeping Nonprofi t Books .......315 Chapter 22: Ten Tips to Keep Your Nonprofi t Viable ...............................................321 Index ...................................................................... 327 Table of Contents Introduction ................................................................. 1 About This Book ..............................................................................................1 Conventions Used in This Book .....................................................................2 What You’re Not to Read ................................................................................2 Foolish Assumptions .......................................................................................3 How This Book Is Organized ..........................................................................3 Part I: Accounting and Bookkeeping Nonprofi t Style ........................3 Part II: Balancing Your Nonprofi t Books .............................................4 Part III: Accounting for Nonprofi t Situations ......................................4 Part IV: Wrapping Up the Books ..........................................................4 Part V: The Part of Tens ........................................................................4 Icons Used in This Book .................................................................................5 Where to Go from Here ...................................................................................5 Part I: Accounting and Bookkeeping Nonprofit Style ....... 7 Chapter 1: The Nuts and Bolts of Nonprofi t Bookkeeping and Accounting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 Getting Started with Your Nonprofi t’s Books ............................................10 Identifying the difference between bookkeeping and accounting ..........................................................10 Picking your accounting method .......................................................11 Understanding the basic terms ..........................................................12 Adhering to GAAP ................................................................................15 Keeping a paper trail ...........................................................................16 Auditing 101: It’s a GAAS! ....................................................................16 Making Sure Your Books Are Balanced ......................................................17 Establishing a chart of accounts ........................................................17 Tracking transactions .........................................................................17 Developing a budget ............................................................................18 Staying within the lines: Compliance ................................................18 You’re in the Money: The Lowdown on Federal Grants ...........................19 Gleaning some grant basics ................................................................19 Following the rules ..............................................................................20 Going through a grant audit ...............................................................20 Paying Uncle Sam: Employee Payroll Taxes ...............................................21 Getting a Grasp on Financial Statements ....................................................21 Figuring Out Where Your Nonprofi t Is: Five Important Questions .........23 viii Nonprofit Bookkeeping & Accounting For Dummies Chapter 2: Starting with Basic Bookkeeping and Accounting . . . . . .25 Understanding Bookkeeping and Accounting ............................................25 What’s the difference between bookkeeping and accounting?......26 Defi ning some common fi nancial terms ............................................27 Finding the Right People to Manage the Books and Monitor the Finances ................................................................................................29 Considering a bookkeeper or an accountant ...................................30 Doing it yourself ...................................................................................31 Opting for a fi scal sponsor or agent ..................................................31 Outsourcing the job .............................................................................32 Hiring an independent auditor ...........................................................33 Choosing Your Accounting Method ............................................................33 Keeping track of the cash ...................................................................34 Accrual basis of accounting ...............................................................34 Running Numbers on Your Assets ..............................................................35 Evaluating assets by original cost or fair market value ..................35 Grasping depreciation methods ........................................................36 Keeping an Eye on Your Assets ...................................................................39 Protecting your nonprofi t’s physical assets ....................................40 Setting internal controls ....................................................................40 Chapter 3: Introducing Financial Statements . . . . . . . . . . . . . . . . . . . . .43 The Lowdown on Financial Statements: Why They’re Important ...........43 Seeing the benefi ts of tracking the money........................................45 Who uses these statements ................................................................45 Using Financial Statements to Your Advantage .........................................47 Assist with grant proposals ................................................................47 Allow you to track donations .............................................................48 Track nonprofi t activities ...................................................................48 Indicate lawsuits: Contingent liabilities ............................................49 Identifying the Financial Statements ...........................................................49 Reading the statement of activities ...................................................49 Working with the statement of fi nancial position............................52 Developing the cash fl ow statement .................................................52 Grasping the statement of functional expense ................................55 Documenting the notes to the fi nancial statements........................55 Chapter 4: Keeping Good Records: Using a Manual System or Computer System. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59 Going the Manual or Computer Route? ......................................................59 Choosing a Manual System ...........................................................................61 Knowing the pros and cons ................................................................61 Eyeing the parts of a manual system.................................................62 Trying Excel: The Easy Computer Route ....................................................63 Breaking down the spreadsheet ........................................................64 Converting your manual system into a spreadsheet ......................65

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