Nonprofit Bookkeeping & Accounting for Dummies

365 Pages·2009·6.09 MB·English

by  Farris, Sharon.

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(cid:127) How to figure out employee
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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$)
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Nonprofit
Bookkeeping & Accounting
FOR
DUMmIES
‰
by Sharon Farris
President of Farris Accounting &
Consulting Training Services (FACT$)
Nonprofi t Bookkeeping & Accounting For Dummies®
Published by
Wiley Publishing, Inc.
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Copyright © 2009 by Wiley Publishing, Inc., Indianapolis, Indiana
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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 [phone],
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.
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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