Non-Profit Bookkeeping Basics: Understanding Taxes, Donations And More

Friday, 30 Aug 2019

Bookkeeping is an integral part of non-profit organisations, which allows them to manage their finances appropriately. As per the common perception, non-profits are altruistic entities that are working for the greater good of the society.

However, it operates in the same manner as any other commercial business, with the capital flowing in through grants and donations and going out in the form of events and services offered to people.

So they too need to keep track of all the transactions taking place within the organisation, which help them to maintain transparency with their donors, submit timely reports and maintain auditing obligations.

If there is any indication of misappropriation of funds, it can tarnish the image of the non-profit. Thus bookkeeping for non-profit organisations in Melbourne is a vital task that must be carried out by qualified and experienced professionals.

To shed some light on non-profit bookkeeping, let us give you a rundown on its basics. Take a look.

Documenting All The Income And Expenses

A non-profit in Melbourne can generate revenue from multiple sources and all of these must be recorded accurately by the bookkeeper to maintain the ledgers and create the financial reports. Here is a list of the incomings:

Donations

These can be obtained from various marketing initiatives including cold calling, email-marketing, online advertising, direct mails, door-to-door collections, etc. The mode of payment can range from online payments to cash and cheques and must be accounted in the financial documents.

Grants

The local and central government as well as the private sector offers grants to non-profits which shall make their way into the records.

Events

Some non-profits generate funds in Melbourne through events by charging an entry fee which needs to be mentioned in the documents.

Besides these, there are other incomes, such as money generated from investments made by the non-profit entity, membership dues, time spent by a skilled volunteer that benefits the non-profit, etc.

Similarly, the expenses must be planned according to the budget. The bookkeeper must ensure that the expenses do not exceed the income which can misbalance the cash flow of the non-profit. The accounting software can come handy in this regard.

Pick A Non-Profit Accounting Software For Number Crunching

If you have not already automated your processes, then it is time to get accounting software tailored specifically for your non-profit organisation. It must give you the freedom to access real-time data and track the liquidity graphs and timely stats of income and expenses.

These updated software have a dashboard which make the job of the bookkeeper effortless and quick. The best part about using cloud-based accounting software is the remote working capability extended to the bookkeepers and others who are using it.

So you can utilise it to check the financial records at anytime and from anywhere in Melbourne or the entire world. Some of the software can be customised with the help of add-ons and can be developed further to include more users and bring in advanced features needed by your organisation. Thus everything gets organised and streamlined.

 Financial Management For Non-Profits

Although the non-profits are not working for earning profits, they need to earn money which can be put back into the venture for maintaining its operations in Melbourne.

Efficient financial management aids in checking the financial data and budgeting to improve the use of cash and maintain profitability. It includes managing the expenses and generating more funds to enhance productivity.

It will also ensure that the non-profit has enough funds to pay for its debts in a timely manner. Also, the organisation must have working capital to be able to pay upfront to suppliers and for purchase of stock and day-to-day operations.

The bookkeeper must take care of the laws regulating the fundraising activities of various states, territories and local governments. Managing the wages and superannuation of the eligible employees is another crucial aspect of bookkeeping which should not be ignored.   

Claim Tax Concessions For Your Non-Profit Organisations

The income tax payment depends on the type of the organisational set-up of the not-for-profit and the way it has been operating. The non-profits in Melbourne can claim tax concessions, but they must be registered to assert this claim.

They must have the Australian business number (ABN) and get registered for taxes like GST, FBT, PAYG withholding, etc. The charities operating in Melbourne must get registered with the Australian Charities and Not-for-profits Commission (ACNC).

The concessions that can be claimed by non-profits are income tax exemption, FBT exemption, FBT rebate, GST concessions for NFP organisations, GST concessions for charities and gift deductible entities, refunds of franking credits and deductible gift recipients.

However, all of these cannot be claimed by your organisation, your bookkeeper will let you know which are applicable to your non-profit and then claim them. For example, FBT exemption can be claimed only by public benevolent institutions, health promotion charities, public and non-profit hospitals and public ambulance services.    

Pay Taxes On Funds and Grants

A non-profit which receives grants or funds to operate has to pay the goods and services tax (GST). It is a 10% tax levied on goods and services purchased or sold in Australia.

When your non-profit receives a funding in Melbourne, your bookkeeper will have to send out an invoice to the funding entity with a GST amount. In some cases, the funding entity will itself provide a tax invoice mentioning the GST amount which needs to be paid.

As stated above, it will be 10% of the amount received by the non-profit. These funds or grants have to be mentioned in the business activity statements (BAS) and the GST has to be paid to the ATO. 

Reporting Obligations For Non-Profits

The non-profits have to prepare several reports including the annual report which contains the Chairman’s address and the performance details, a financial report which consists of an audit review report, director’s report and declarations and financial statements which include comprehensive income statements, financial position statement, changes in equity statement and cash flow statement.

The governing obligations in Melbourne make financial reporting essential as well as the need of funding bodies to keep a tab on the utilisation of their funds.

Conclusion

Bookkeeping for non-profit organisations in Melbourne is the best way to keep the expenses under control and maintain the flow of cash in the entity. The bookkeepers take charge of everything from claiming tax deductions to managing the super of employees and creating the required reports.

The points mentioned above will be helpful in gaining a basic understanding of non-profit bookkeeping and the responsibilities of their bookkeepers.  

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