Accounting systems for Non profit start ups

The accounting procedures for non profit organizations in the U.S.A is governed by the Generally accepted accounting principles (GAAP) laid down by the Federal Accounting Standard boards (FASB).

The systems are very comprehensive and it would be beyond the scope of this article. It is also not necessary for a non profit organization to get into all the details at the time of the beginning.

We will instead look at the basic documents that are to be maintained by an organization.

As a first thing, the non-profit organization has to clearly specify the date on which a new financial year would begin for the organization in its bye laws. Every year, the organization will have to finalize its accounts in the year end.

Accounting system

The non profit organization will have to maintain a journal for recording all financial transactions in a chronological order of their happening. The entries will have to posted from the journal to the respective ledgers on a periodical basis.

The organization needs to specifically maintain a cash book for recording all cash (& bank) transactions.

The following statements need to be prepared at the end of the financial year –

1) Receipts & payments account
2) Income and Expenditure account
3) Balance sheet of the organization.

The accounts of the organization should preferably be audited by a certified accountant every year. While not compulsory for new start up non profit organizations, we recommend this as it really adds a lot of credibility to the organizations documents.

Vouching system
All financial transactions will simultaneously be recorded in journal vouchers. All payment vouchers will have to be accompanied by the corresponding invoices or bills received against those expenses. All incomes will have to acknowledged by issuing receipt to the granter of funds.

Registers to be maintained

Besides the journal and ledgers, a non profit organization must maintain the following registers –

a) Employee register
b) Employee Attendance register
c) Visitors register
d) Petty Cash register
e) Regsiter of Activities
f) Meetings attendance register
g) Minutes book
h) Board Resolution records
i) Fixed assets register
j) Depreciation register
i) any other register deemed fit for maintenance of records effectively.

These information may be recorded in physical or electronic forms.
Several easy to use software programs are available in the market to enable a start up organization to automate and integrate all these processes. Various software programs that are popular with non profit organizations has been discussed elsewhere on this website.

Each of these components is further elaborated in different sections of this website.