Bookkeeping is important for the health of any business, including nonprofit organizations. Proper bookkeeping helps to save time and money but also can help you to stay compliant, so you do not lose your nonprofit status. Bookkeeping for a nonprofit is similar to the bookkeeping process for other businesses. First, you track and record all the financial transactions that occur, this includes all donations and in-kind (non-financial) contributions. In-kind contributions are recorded as what they would normally be worth. For example, if your nonprofit business is upgrading a room and an electrician donates their skills and time to help set up the wiring in the room, you would record the amount they would have charged normally. So, if the electrician usually charges $80 per hour and they worked for three hours on the room in your business, you will record the in-kind contribution for $240 in your books.
Once all transactions are recorded, they are confirmed to be accurate. Afterward, financial reports are produced. The financial reports produced for a nonprofit are a little different from the ones typically produced for a for-profit business. Most nonprofit organizations prepare the statement of financial position, statement of activities, statement of cash flows, and the statement of functional expenses.