Nonprofit Revenue and Expenses: Real World Answers to Everyday Questions
Tracking revenue and allocating expenses can be a daunting task for nonprofits. Our advisor answers questions on nonprofit revenue and expenses.
Editor’s Note: The following questions and answers represent real world challenges nonprofits encounter managing nonprofit accounting methods. Our advisor column is intended to provide basic advice on questions related to the topic. Answers to these questions are simply the view and opinion of our nonprofit accounting pros. Nonprofit Accounting Pro shall not be liable, answerable or accountable for any loss or damage resulting from the advice given by our advisor.
How to Handle Nonprofit Revenue and Expenses
I volunteer as treasurer for a nonprofit bakery. They were given the opportunity to get a Hobart commercial double oven for $300. My guess is the oven is valued at $2000 — $3000. How do I record it? At cost or value with the difference between cost and value going to inkind donations?
Answer: When recording the purchase of an oven for $300, that is valued at $2000, you would record the purchase price of $300 and then record an inkind donation for the difference. The donor’s deductible amount is the difference between the purchase price and the value.
I have a client that wants employer payroll tax expenses broken out by class. Like for an employee split 50–50 with admin and programming they also want the taxes they pay for that employee split 50–50 and have the class for admin and program assigned. Is this really necessary?
Answer: Yes, this is absolutely necessary, since all nonprofits need to allocate all expenses by functional area — Support Services, which includes Management and General and Fundraising, and Program. It is essential to allocate all expenses, including salaries and payroll taxes to the appropriate functional area. If your accounting software cannot handle this, then it would be worthwhile to look at an accounting system that will allocate the costs automatically for you, like Araize’s FastFund Online.
My nonprofit is recently incurring frequent expenses that are reimbursed by other entities. They are not donations as they are being invoiced for the specific expenses that are incurred. It happened once last year and the CPA at that time said to just create a contra-expense account as the sub-line item. It looks like this will be happening on a much more frequent basis and I want to confirm that is a proper way of handling it? I don’t like having that type of craziness in the COA. If we know ahead of time that the expense will be reimbursed, would it be better to book the original expense to prepaid expenses and have the reimbursement also booked there? Or is it correct to book directly to a reimbursed expense account and reimbursed expense income account?
Answer: Your CPA is complicating matters for you. The funds received for reimbursement of expenses should be credited to the original expense account, reducing the expense. You do not need to create a contra-expense account.
For those of you using deferred revenue, do you move funds from deferred revenue to income individually as part of every single relevant expense entry, or do you summarize and transfer a lump sum for all expenses at the end of each month?
Answer: When recording the recognition of deferred revenue, you can make a single entry at the end of the month as a summary of the entire month’s activity.
This nonprofit works on a cash basis but lately there have been a few times that I have had to enter in invoices. I just noticed that half of them went in Accounts Receivable and half went in Pledge Receivable. Why would this happen (as opposed to just one or the other)? When I create the invoice I just enter the service item which eventually links to the right income account. Where is the “middle man” account chosen?
Answer: If your invoices are for services rendered for income, the the posting should be to your Accounts Receivable account. If you receive a pledge for a charitable contribution and record the pledge, then the posting should go to the Pledge Receivable account. In QuickBooks, your bills have items that are linked to income accounts. If you record pledges, then you would have to set up an item for Charitable Contributions that is linked to your Donations account.
In the normal course of navigating the myriad of issues related to nonprofit revenue and expenses, you may have encountered some of these questions. It is essential to follow compliant nonprofit accounting methods to ensure accountability to your funding sources.
We hope our answers provide clarification. We welcome your questions and feedback. Feel free to comment below.