Accounting Practice for Non-Profit Organizations
Source Documents/ Filing -
Each entry should be backed up with folders of documents supporting each transaction. In addition to receipts, payments should be supported by a payment voucher and any other relevant documentation. Payments and receipts should be filed separately. File these documents in date order, the most recent on top. This filing system should make it easy to find the records for any transaction listed in the cashbook.
Provide Receipts for Donors –
Always give receipts when you receive any kind of donations. It is best to use the carbon copy kind. This allows the donor to claim their contribution on their tax return, as well as provides you with a record of donations.
Explanation of Accounts -
The accounts included in the spreadsheet are:
• Bank Account – Record deposits, withdrawals, and fees charged
• Cash – Keep track of all cash transactions
• Donations – Monetary support received
• Non-Cash Donations – Estimate the value of clothes, food, etc received
• Sales – Record goods sold at the selling price
• Cost of Goods Sold – Keep track of the cost of and profit made on goods purchased for sale. More on this account below.
• Advertising – Cost of advertising the organization's purpose or an event
• Bank Fees – Record any fees charged by the bank
• Charitable Contributions – Record the transaction when funds are transferred to help your cause (i.e. To a specific school, orphanage, charity)
• Miscellaneous Expenses – One-time expenses not covered under the given accounts
• Office Supplies – Envelopes, staples, paper to print flyers, etc
• Postage – Stamps, delivery expenses
• Printing Expenses – Having material printed for an event, making copies
• Professional Fees – Hiring a consultant, accountant, web page designer, lawyer, etc
• Other Income – Any income that isn't a donation or sale, and that doesn't relate to the mission of the organization. For example, if the organization invests in a mutual fund, the profit from the sale of the stock would be listen under Other Income. Also, if the organization's savings account receives interest, it will be recorded under this account.
Keep in mind that you can tailor the spreadsheets to your own activities and needs. If there is a recurring expense that isn't covered under the given accounts, don't hesitate to create a new account (don't forget to assign an account number to it and add it to the income statement). Likewise, feel free to delete any extraneous accounts that you don't use. Just make sure your records are consistent.
Recording Transactions -
Each transaction, be it receiving a donation, selling cards, or paying a bank fee, must be recorded in order to keep accurate business records. Each entry should be recorded in the general ledger. The general ledger is the core of your records, where every financial transaction is accounted for. It may seem confusing at first, but it's easy once you've made a few entries.
There are two main points to understand when using a general ledger. The first is that the information recorded in the general ledger is used to create an income statement, which is an overall picture of efficiency based on income and expenses for a given time period.
The second issue is that you will always create two entries for any given transaction. For example, if you receive a donation of 2,000 yen:
First, record the donation under Donations (100):
06/29/06 Donation 2,000 Received donation from Mr.X
Then, make an entry under the Cash account, since the cash has not yet been deposited into a bank account.
06/29/06 Donation 2,000 Received donation from Mr.X
When you deposit the money into the organization's bank account, you will again make two seperate entries to record the transaction:
Under Bank Account:
07/02/06 Deposit 2,000 Deposited donation
Then, under Cash, subtract the amount of the deposit, since you no longer have the cash on hand:
07/02/06 Deposit <2,000> Deposited donation
Try to keep the explanations as detailed as possible. It's fine to lump several donations together in one entry under Donations, as long as you keep a seperate report detailing the individual transactions.
Paying Out of Pocket
If you pay for an expense out of pocket, for example if you purchased a book of carbon copy receipt templates for 400 yen on July 10th, you would first make an entry in the Donation (100) account:
07/10/06 Donation 400 Purchased receipts out of pocket
Then, enter the expense under Office Supplies (330):
07/10/06 Receipts 400 Purchased receipts out of pocket
Please see the sample ledger for more examples of recorded transactions.
Cost of Goods Sold
Note: If you are selling cards for Go M.A.D., or any other good you don't have to purchase, ignore the Cost of Goods Sold account! Enter the cash received under the Sales and Cash accounts only.
This may be the most complicated accounting concept you will have to deal with while using this system. If you decide you want to purchase goods, with the intention to sell them at a higher price in order to donate the profit to charity, there are some special entries you will have to record.
First, lets say you purchase 20 greeting cards for 50 yen each, which comes to 1000 yen total cost to you. Record the purchase under Cost of Goods Sold (200):
06/30/06 Purchased Cards 1000 Purchased cards to sell (20 @ 50en/each)
Then, reduce cash, your bank account balance, or increase the donation account (if you paid out of pocket), depending on where the money came from. For example, lets assume you paid using cash you had from donations that you hadn't deposited in the bank yet:
06/30/06 Purchased Cards 1000 Purchased cards to sell (20@ 50en/each)
When you make a sale, you must make 3 entries. Let's say you sold 5 cards for 100 yen each (500 yen received).
First, record the sale in the Sales (101) account:
07/01/06 Sold Cards 500 Sold 5 cards @ 100 yen each
Next, record the cash received in your Cash account:
07/01/06 Sold Cards 500 Sold 5 cards @ 100 yen each
Then, record the reduction of inventory in the Cost of Goods Sold (200) account, using the price you paid, not the selling price:
07/01/06 Sold Cards 250 Sold 5 cards (5 @ 50 yen cost = 250)
Non-cash donations
All non-cash donations, such as food or clothing, should be recorded using their fair market value. Just think of what you would pay for clothes in a second-hand store or how much food costs in the grocery store, and calculate the value of the donation. For example, if you receive a donation of 2 shirts and one pair of pants, a good estimate would be 200 yen for each shirt, and 300 yen for the pair of pants, making for a 700 yen value of the donation. This would be recorded under the Donation (100) account as:
07/17/06 Non-Cash Donation 700 Received 2 shirts (200 yen each) and 1 pair
of pants (300 yen)
And then in the Non-Cash Donations account:
07/17/06 Non-Cash Donation 700 Received 2 shirts (200 yen each) and 1 pair
of pants (300 yen)
Income statement -
An income statement, otherwise known as a profit and loss statement, is a summary of a company’s profit or loss during any one given period of time, usually over the course of 3 months. You use an income statement to track revenues and expenses so that you can determine the operating performance of your business over a period of time. Specific items that are causing unexpected expenditures can be pinpointed, such as fees, postage, or supply expenses. Income statements can also track increases or decreases in donations versus money spent on advertising and how much of the donations received makes it into the hands of whoever the organization is trying to help.
Adding Rows to Accounts -
Inevitably, you will need to add rows to the accounts in the general ledger in order to accommodate a higher number of entries than the space provided. The formulas within the spreadsheets automatically calculate the totals of the accounts in the general ledger, as well as column F in the income statement. If you add a row to an account, or add accounts to the income statement, be sure to check that the formulas cover the new perimiter, although the formula should update automatically.
For example, if you click on cell D19 in the general ledger, you will see the formula =SUM(D9:D18) in the white area above the spreadsheet. Now, if you add a row to this account, the cell that displays the total will then be D20, and the formula, when you click on D20, should read =SUM (D9:D19), and will now display the sum of the new range. Update the formula manually if it doesn't update automatically.
Accounting Periods -
You can begin recording entries on any date, as long as you keep consistent time intervals. For example, if you begin recording entries on 06/20/06, you will then create the income statement for the quarter on 9/20/06, or thereabouts.
You should record entries in the general ledger for three months before creating an income statement for the quarter. After the quarterly income statement is finished, do not record any more entries in that quarter's general ledger. Instead, you will need to start a new spreadsheet for the new quarter.
When starting a new ledger, don't forget that the ending balance of Bank Account, Cash, and the Cost of Goods Sold Ending Inventory become the opening balances of those accounts for the next quarter!
Supporter Database -
There is also a spreadsheet dedicated to keeping a record of everyone who has helped support your cause, whether donor or volunteer. This way, you can keep everyone updated on charity events or upcoming projects. But first, be sure they consent to being contacted by your organization.
Tax Exemption Guidelines -
Even if the organization doesn't file taxes, this information is good to keep in mind:
To be tax-exempt, an organization must be organized and operated exclusively for one or more of the purposes set forth (charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and the prevention of cruelty to children or animals) and none of the earnings of the organization may inure to any private shareholder or individual. In addition, it may not attempt to influence legislation as a substantial part of its activities and it may not participate at all in campaign activity for or against political candidates.
The term charitable is used in its generally accepted legal sense and includes relief of the poor, the distressed, or the underprivileged; advancement of religion; advancement of education or science; erection or maintenance of public buildings, monuments, or works; lessening the burdens of government; lessening of neighborhood tensions; elimination of prejudice and discrimination; defense of human and civil rights secured by law; and combating community deterioration and juvenile delinquency.
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