Monday, 11 Dec 2023
While most businesses operate for financial gains, some entities exist for the social good. These are not-for-profit organisations in Australia because they do not use their income for personal gains or the growth of their members and employees.
It has specific goals of a charitable nature, and the income earned is invested back into the organisation to accomplish them without profit distribution. These organisations can be categorised as charities or non-profit entities separate from charities like community service associations and sporting clubs.
Although these organisations do not want to gain personal profits from their endeavours, they need to manage their finances. Bookkeeping is an integral part of their operations as it helps maintain the records of all transactions and get tax exemptions if they qualify.
Let us help you understand bookkeeping for nonprofits with the help of a basic guide and best practices given below. It will help charities and other not-for-profit organisations continue their activities while complying with the accounting standards.
Every organisation must have accurate financial records to know their cash flow and adhere to legal obligations. Thus, nonprofits must hire an expert bookkeeper Melbourne to streamline the process. Basic bookkeeping for nonprofits involves the following steps:
Professionals use acceptable accounting standards for maintaining up-to-date records without any possibility of errors. They keep track of all the capital flowing in and out of the not-for-profit and prepare financial statements like balance sheets and profit and loss and cash flow statements. It helps the members of the organisation to determine the profitability of the entity.
Budgeting is an essential process to ensure the non-profit uses its capital wisely. They can allocate funds to each department based on their short-term objectives and priority projects.
Budgeting helps anticipate expenses and ensure funds are available to pay bills and complete the tasks. The non-profit management team can also plan for the future with the help of the projections prepared by the bookkeeper in Melbourne.
Not-for-profit organisations that are not registered with the Australian Charities and Not-for-Profits Commissions as a charity, but are eligible for it, have to file income tax returns. If the non-profit has an Australian Business Number and has self-assessed itself as income tax exempt, it must file the annual self-review return for 2023-24 with the ATO to get the exemption.
Not-for-profit organisations need clean and organised financial records to secure funds and grants. The sponsors and grantors check the entity’s financial statements to know how it is performing and evaluate if it can utilise the funds effectively.
The accurate and error-free records prepared by experienced Melbourne bookkeepers help to maintain transparency with the beneficiaries and donors.
Like other businesses, not-for-profit organisations must follow the industry benchmarks for bookkeeping in Melbourne. These include:
Many not-for-profit organisations get in-kind contributions, such as a computer or equipment for the office. In addition, some professionals may offer free services instead of charging fees for their work with the organisation. These contributions should be tracked and recorded with all the details of the donor and the estimated value of the tangible or intangible donation.
Bookkeepers help nonprofits use the National Standard Chart of Accounts (NSCOA) that has been developed for not-for-profit organisations. It helps to standardise recordkeeping across nonprofits in the country. It saves time and money spent on accounting by the entity. Also, it can be customised to suit the needs of the entity.
Reconciling bank statements is one of the significant tasks conducted by bookkeepers, which involves matching the internal financial records with the bank statements. It helps to identify any errors in the records and ensure that every transaction has been correctly entered in the books. It minimises fraud and helps maintain accurate records and reports that give a clear picture of the financial health of the non-profit.
Not-for-profit organisations are on the lookout for volunteers who can help them complete their tasks. For example, the entity can organise a fundraiser with the help of volunteers from the community.
The volunteer time cannot be recorded as income by the entity but it must be considered as a significant contribution to be used in the financial reports. Bookkeepers for non-profits in Melbourne can help in determining the market value of volunteer time for accounting purposes.
Every organisation is moving towards digitalisation and adopting tools that help automate time-consuming processes. Thus, nonprofits should also opt for accounting software that can be customised for not-for-profit entities. It helps to reduce the workload and eliminate the risk of errors.
Any organisation that earns an income and pays its employees has to follow the bookkeeping principles. It ensures they comply with the legal obligations and maintain a strong bottom line to sustain themselves.
