Requests for transparency and accountability continue to grow with increased donor demands around the use of contributions. Classifying revenue by restriction; means recording and reporting restrictions that funders and donors have placed on contributions. You can use a statement of financial position showing net assets by class of restriction. A statement of activities provides the amount released from restrictions.
A functional expense report is unique to nonprofits because contributions come in many forms donations, grants, dues, events, services, pledges, planned giving and bequests. These often need to be tracked and reported across multiple programs, projects and reporting periods.
The right chart of accounts lets you see financial activity, budgets, grant reimbursements, endowment allocation details, supporting documents and change history.
Using the right software, you can accomplish the following:
- Track grants and endowments - report activity for various projects, special events, endowments, exhibitions, scholarships and investments.
- Track transactions and budgets - track budgets at many different levels to create reports to satisfy board members, auditors, grantors and donors.
- Manage grant and endowment restrictions - demonstrate that you've used donations according to the grantors' specifications. Report by grant in detail, evaluating its performance by grant-relevant dates. Staff members can share grant information internally, ensuring that funds are used only on approved expenditures.
- Manage grant budgets and spending limits - supervise grant deadlines, complete grant administrative tasks and automate indirect cost reimbursement calculations.
- Process grants - record additional levels of tracking and processing as required, including expense reimbursement and indirect cost allocations.
- Calculate expenditures - calculate the amount expended on reimbursable grants by grant or contract and create a corresponding report in each funder's format, facilitating the submission of reimbursement requests.
- Account for more than one grant - keep your organization running even when costs not easily linked to a particular grant or contract. Most grantors, including the federal government, allow nonprofits to bill a percentage of the direct expenses related to the grant to recover the indirect costs. In many grants, this is referred to as a Negotiated Indirect Cost Rate Agreement and is part of the grant contract. Nonprofit accounting systems automate the process of calculating the total direct costs and associated indirect allowances.
As you can see, nonprofit accounting can be complex. Call us today and we'll walk you through the many steps.