Outsourced Accounting for Nonprofits: Special Requirements and Best Providers

Nonprofit accounting follows its own standards, and the differences are structural rather than cosmetic.

Money given for a purpose has to be tracked against that purpose for as long as the restriction lasts. Statements that ignore this will still balance, and they will misrepresent what the organisation is actually free to spend.

This covers why the accounting differs, the standards that apply, how fund accounting works, the annual return, how grants are accounted for, and what donors and the board should be receiving.

Why Nonprofit Accounting Is Different

Nonprofits operate under a different GAAP standard (FASB ASC 958), report on net assets rather than equity, and must account for donor restrictions that for-profit businesses never encounter. A provider without nonprofit experience will misclassify funds and create compliance exposure.

FASB ASC 958: Nonprofit-Specific GAAP

Under ASC 958, nonprofits classify net assets into two categories: with donor restrictions and without donor restrictions. This replaced the old unrestricted/temporarily restricted/permanently restricted classification in 2018.

• Without donor restrictions: funds the board can use for any purpose
• With donor restrictions: time-restricted gifts, purpose-restricted grants, endowments

Fund Accounting

Fund accounting tracks each grant or restricted gift as a separate fund with its own revenue and expense tracking. A $50,000 restricted grant for a literacy program must be spent only on that program; the accounting must prove it.

Form 990: The Nonprofit Tax Return

Nonprofits with >$200,000 gross receipts or >$500,000 total assets file Form 990. Key schedules include Schedule A (public charity status), Schedule B (major donors), and Schedule H (for hospitals). The 990 is public record, accuracy and presentation matter.

• Form 990-N (e-Postcard): gross receipts under $50,000
• Form 990-EZ: gross receipts $50,000-$200,000
• Form 990: gross receipts over $200,000 or assets over $500,000

Grant Accounting

Each grant has its own budget, allowable expense categories, and reporting requirements. The outsourced accounting team must track actuals against the grant budget, ensure unallowable costs are not charged to the grant, and prepare the financial reports required by the funder.

Donor Reporting

Major donors and foundations often require annual impact and financial reports. The accounting function provides the financial data underlying these reports, including how their specific gift was used.

Board Financial Reporting for Nonprofits

Nonprofit boards have fiduciary responsibility. Monthly or quarterly board reports typically include:

• Statement of Financial Position (balance sheet equivalent)
• Statement of Activities (income statement equivalent, by restriction class)
• Statement of Cash Flows
• Budget vs. actuals by program and by restriction
• Reserve fund balance and policy compliance

Audit Requirements

Nonprofits that receive federal awards of $750,000 or more in a year must undergo a Single Audit (also called an A-133 audit) in addition to their financial statement audit.

What to Look for in a Nonprofit Accounting Provider

• Experience with FASB ASC 958 and fund accounting
• Proven Form 990 preparation track record
• Familiarity with grant accounting for federal, state, and foundation grants
• Software: QuickBooks Nonprofit, Sage Intacct, or Aplos
• References from similarly sized nonprofits in the same sector

Frequently Asked Questions

Written by

Abhinav Gupta, CPA, CA, MBA

Abhinav works with business owners across the US on industry-specific bookkeeping, from dental practices and restaurants to construction and e-commerce. He writes about what each trade's books actually need. Connect on LinkedIn