Hi there all you nonprofit QBO Plus users.... I am new to QB and have a question about the Chart of Accounts. I understood that when you set the organization to nonprofit and the tax form to 990, that the Chart of Accounts would change to use terms like Income instead of Revenue for the Type. Mine hasn't. And get more nonprofit financial reporting information you can rea our pdf file. And get more information you can visit us.
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Module Three Lecture Notes Accounting is based on a set o.docxmoirarandell
Module Three Lecture Notes
Accounting is based on a set of principles referred to as “generally accepted accounting
principles” (GAAP). It is important to understand the conceptual framework to help you
understand that accounting has a logical structure.
The Conceptual Framework “structure” is illustrated on page 61, Exhibit 2.1.
The accounting principles have a hierarchy to the structure:
All accounting information should be useful to the users of financial statements. Therefore, the
qualitative characteristics are to ensure that the information is useful:
• Relevance – For information to be relevant, it must make a difference in helping users
make decisions. In other words, if the information is not material (too small to matter),
then the information is not relevant. The information can either be “predictive” in that
it helps predict future events or it can be “confirmatory” in that it helps confirm prior
expectations.
• Faithful Representation – for information to useful it must faithfully represent real-
world economic events.
In addition to these fundamental characteristics, there are four additional characteristics that
accounting information must possess to enhance its usefulness:
• Comparability – For information to be comparable a user must be able to compare the
information from one period to the next. Also, this information must be applied
consistently from one period to the next.
• Verifiability – Information is verifiable when the information can be confirmed
independently. For example, when you purchase a new car, the purchase price can be
verified independently by the bill of sale or contract that is signed with the dealer.
• Timeliness – In other words, the information must be made available before it loses its
information to influence users. The net income of a company from six years ago is not
useful in making investment decisions today.
• Understandability – This implies that the readers of the financial statements (given
reasonable knowledge of accounting) can comprehend the meaning of the information
being presented.
A good exercise to review the practical application of the Conceptual Framework is found on
page 63 and 64 of the textbook (Cornerstone 2.1). It is important to understand how the
accounting framework is the foundation of all GAAP.
There are some assumptions that must be made and underlie all accounting information:
• Economic Entity assumption: Each company is accounted for as a separate economic
entity from its owner or owners. Tim Cook’s personal transactions would never be
recorded as part of Apple’s transactions. A sole proprietor’s accounting records would
be maintained separate from his/her personal accounting records.
• Going-concern assumption: This assumption assumes that the entity will continue in
the future at least long enough to meet all of its future commitments. In other words, if
a corporation has raised capital by i ...
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Accounting is based on a set of principles referred to as “generally accepted accounting
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understand that accounting has a logical structure.
The Conceptual Framework “structure” is illustrated on page 61, Exhibit 2.1.
The accounting principles have a hierarchy to the structure:
All accounting information should be useful to the users of financial statements. Therefore, the
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• Relevance – For information to be relevant, it must make a difference in helping users
make decisions. In other words, if the information is not material (too small to matter),
then the information is not relevant. The information can either be “predictive” in that
it helps predict future events or it can be “confirmatory” in that it helps confirm prior
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• Faithful Representation – for information to useful it must faithfully represent real-
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In addition to these fundamental characteristics, there are four additional characteristics that
accounting information must possess to enhance its usefulness:
• Comparability – For information to be comparable a user must be able to compare the
information from one period to the next. Also, this information must be applied
consistently from one period to the next.
• Verifiability – Information is verifiable when the information can be confirmed
independently. For example, when you purchase a new car, the purchase price can be
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2. | ii
Non-profit financial reporting:
Top 3 must-review items on your financial statement and how QuickBooks can help
Table of contents
Ready to learn more?
888-692-3621
01
03
02
06
08
11
Introduction
Item 1: Restricted vs unrestricted funds
Key financial data points made simple
Item 2: Revenue model structure
Item 3: Program costs
Final thoughts
Disclaimer: Information may be abridged and therefore incomplete. This document/information does not
constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is
different, the advice provided is intended to be general. Please contact your financial or legal advisors for
information specific to your situation.
3. | 1
Non-profit financial reporting:
Top 3 must-review items on your financial statement and how QuickBooks can help
Financial reporting is the lifeblood of non-profit organizations. An oversight-
driven sector, non-profits rely on accurate, timely financial data throughout
the year to present to board members and finance committees, comply with
federal regulations, and ensure ample cash flow to support program services
and long-term financial health. Financial reports show the organization’s
achievements in fulfilling its mission while also demonstrating effectiveness
in handling revenue from donors, fundraising efforts and government grants
against associated program expenses. QuickBooks can help you achieve this.
Non-profit groups understand the critical role financial reporting plays in
communicating information to key constituents. As such, regular monthly
reporting typically includes a Statement of Financial Position (balance sheet),
a Statement of Activities (also known as the profit and loss statement (P&L or
income statement), and other required reports unique to the organization.
Having real-time data on hand arms an organization’s governing body (its
Board of Directors) with the information necessary to make sound business
decisions and ensure the viability and liquidity of the non-profit. Accurate
reporting must also be maintained in the event of an audit.
Just like for-profit businesses, complete visibility of financial data at all times is
necessary to make smart, informed economic decisions and maintain a strong
inflow of cash. And all with the sole purpose of reinvesting profits back into the
programs and services offered.
This eBook was created to provide you with an informative guide on the
top KPIs (key performance indicators) for non-profits. We offer several tips
throughout to help you maximize the power of QuickBooks to better manage
your financials and ensure the sustainability and financial health of your
organization.
Introduction
4. | 2
Non-profit financial reporting:
Top 3 must-review items on your financial statement and how QuickBooks can help
Accounting and GAAP expert to non-profits, Megan Genest Tarnow, principal
at The Mobius Group, deeply understands the reliance on financial reporting
to the not-for-profit sector. “Non-profits are unique compared to many for-
profit small businesses in that they do review financial statements regularly
because of the overall structure of oversight and review. Boards or finance
committees require monthly reporting to review financials and meet the
budget-to-actual standard.”
To help simplify financial reporting, Genest Tarnow offers three financial
reporting items that non-profits should review each month. Additionally, as a
QuickBooks ProAdvisor, she offers added insight into core system features that
can save you valuable time and fuel business growth via deeper insight into
business intelligence.
Key financial data points made simple
5. | 3
Non-profit financial reporting:
Top 3 must-review items on your financial statement and how QuickBooks can help
Item 1: Restricted vs unrestricted funds
It’s important to have a clear understanding of what funds are restricted and
those that are unrestricted. Restricted funds can be based on donor intent
(money can only be used for a specific purpose as a result of designated
giving or a designated timeframe. Restricted and unrestricted funds are one
of the biggest differentiators between non-profit organizations and for-profit
businesses. Donors can restrict contributions to either purpose or time (e.g.,
multi-year support).
According to Genest Tarnow, “Where non-profits tend to get into trouble is
that they don’t have a full understanding of what’s restricted and what’s not.
They can’t look at funds as one big pool of money...there needs to be a clear
designation between restricted and unrestricted cash so they know what’s
available for them to spend.”
Adding to the confusion, non-profits recently went from three categories of net
assets to two. This means that non-profit organizations now have to report on net
assets both with and without donor restrictions. On top of that, restricted assets
can be categorized based on purpose, time or in perpetuity.
“The takeaway from all this is that non-profits need to know where their
restricted funds are and whether funds are cash or receivable. This lets them
know what is actually available for them to spend,” explained Genest Tarnow.
“This is why reviewing financial reporting every month is critical.”
Simplifying data presentation is the key to helping stakeholders better
understand the numbers. Within QuickBooks, Genest Tarnow sets up the P&L
statement and balance sheet in three easy-to-follow columns: 1) [net assets]
without donor restrictions, 2) [net assets] with donor restrictions and 3) total.
“We use the very helpful Location feature in QuickBooks to set this up and
simplify reporting for the client.”
6. | 4
Non-profit financial reporting:
Top 3 must-review items on your financial statement and how QuickBooks can help
The ability to present an organized P&L with relevant location titles provides clients with an easy-to-understand
snapshot of financial data.
QuickBooks Tips:
The Location feature in QuickBooks is a
helpful tag that can be applied to revenue
and expense transactions in the system. This
offers an easy way to categorize transactions
and create a profit and loss statement that
only shows transactions for the specific line
of business that has been tagged. Note:
The Location feature must be turned on in
QuickBooks.
This is very useful for non-profits because it
enables the P&L statement to be set up in
three easy to follow columns: 1) without donor
restrictions, 2) with donor restrictions and 3)
total. From the dashboard, you can click on
any project to view the data in more detail.
Within the individual project screen, you are
presented with the profit margin percentage
immediately at the top. Below the profit margin
callout, QuickBooks does the math for you—
breaking down the profit margin percentage
to show income minus costs and the current
profit in dollar amount.
“We work with each client to establish what
their standard metric is for project profitability.
The Project module offers a real-time snapshot
of profit margin by project that we can review
with the client to ensure they stay on track to
hit their goals,” said Schulte.
7. | 5
Non-profit financial reporting:
Top 3 must-review items on your financial statement and how QuickBooks can help
You can also access the “Edit section titles”
feature (available in a pop-up window) to
quickly replace default titles and customize
a client’s P&L statement.
“Non-profits don’t use certain accounting
terminology such as “operating income” or
“gross profits” so it’s a nice to be able to go
in and edit those section titles to names that
make the report line up better...so it’s more
clear to clients,” explained Genest Tarnow.
The Projects module is another feature that
offers a quick overview of income versus costs
on any given classes.
Genest Tarnow provided more insight: “When
we have restricted grants that we are tracking
Use this feature to rename default sections of the report
in the P&L and balance sheet
The Projects module offers at-a-glance visibility into income versus costs.
specific transactions back to, using the Projects
module is great because we can quickly see
the total amount that’s come in, what we’ve
spent so far, and difference of what’s still in
restriction.”
8. | 6
Non-profit financial reporting:
Top 3 must-review items on your financial statement and how QuickBooks can help
Item 2: Revenue model structure
Understanding the revenue model is the next must-review item. Typically, this is
broken down into contributions (money donated) and earned income. The goal
is to ensure that funds are appropriately balanced by tracking where they are
coming into the organization. Reviewing the revenue model monthly allows the
non-profit to make adjustments when funding is “out of whack.”
Genest Tarnow explained: “We look at the total earned income, the total
contributed income, and then track what percentage of funds are coming from
which area.”
From there, it’s important to dig down further into the numbers.
“Organizations should start with an overview of contributed versus earned and
then drill down into each larger category to see where the money is coming
from. Is it individual donors? Is it a foundation? Is it the government? In other
words, is it coming from one “type” of customer.
The goal is to identify if the client has too many eggs in one basket and, if so,
decide if we need to diversify income.”
9. | 7
Non-profit financial reporting:
Top 3 must-review items on your financial statement and how QuickBooks can help
QuickBooks Tips:
Providing data in a highly organized manner
is essential with non-profits. There are so
many types of funds that filter through an
organization that it can quickly become a
“big jumbled mess” according to Genest
Tarnow. For example, a non-profit may create
an income account for every grant received,
which presents on the financial statement as a
random pile of accounts.
To correct this issue and help refine the
revenue structure, you can assign Parent
accounts. This allows you to collapse detailed
information under each Parent account within
the Statement of Activity to help keep focus on
the big picture.
Clients who want to track costs for other
activities beyond just programs can use the
Tag feature in QuickBooks. Tags are an easy
way to track expenses that you want to keep an
eye on.
Organize data under parent accounts
to keep reporting clean.
The Tags feature makes easy work of tracking anything the client wants to monitor.
“I have a client that just wanted to see
how much they were spending on their
newsletter. It’s not a program and not a line
item on the Chart of Accounts, but there
are still expenses associated with it like
design, printing and postage. Creating a
tag allowed them to see exact costs,” said
Genest Tarnow.
10. | 8
Non-profit financial reporting:
Top 3 must-review items on your financial statement and how QuickBooks can help
Item 3: Program costs
Understanding program costs is at the heart of longevity and sustainability
for non-profits. Because there are many expenses associated with program
operations, non-profits need full visibility into financial data to best plan for the
future, mitigate risk of cash shortfalls and appropriately report to the IRS.
“Non-profits are required by the IRS to report their expenses by function,
which is whatever they decide their programs are, plus admin and fundraising.
Historically, there have been watchdog organizations that look at admin and
fundraising costs as a guide of sorts to measure the efficiency and effectiveness
of the organization,” said Genest Tarnow. “More importantly for the non-
profit, by understanding program costs, it helps to determine if they can
support programs on their own or if they need to be subsidized with other
contributions.”
Non-profits are highly regulated and monitored. This is why maintaining
accurate and detailed records of program costs is so important. For example,
the administrative part of running a program can include HR, insurance,
accounting and Board expenses. The fundraising part can include anything
related to marketing the organization and the raising of contributions, including
the expense of office space, postage, copier use and so on. Every dollar
spent on a given program must be calculated to maintain accurate, compliant
reporting.
Reviewing program costs is sometimes an annual exercise. However, for non-
profit groups where cash is tight and decisions on keeping or cutting programs
must be made, monthly review is recommended.
11. | 9
Non-profit financial reporting:
Top 3 must-review items on your financial statement and how QuickBooks can help
Setting up the P&L by class offers a clear view of program costs.
QuickBooks offers non-profit entities full
visibility into financial data—to track and
closely monitor all expenses associated with
program operations. Complete transparency
into the numbers allows stakeholders to
gauge accurate costs, which include not only
program operation expenses but also ancillary
costs associated with admin and fundraising.
All of this data is required for tax filings.
Genest Tarnow explained: “The first step is
knowing the direct costs for each program
for tax purposes. Reporting in QuickBooks
QuickBooks Tips:
indicates program-by-program costs and
allocates admin and fundraising costs across
programs so you can see the cost of each.”
The Performance Center in QuickBooks
(located under Reports) further extends
visibility into the data—offering real-time
intelligence by program in graph form. The
Performance Center dashboard offers a single
organized space to review data with clients.
12. | 10
Non-profit financial reporting:
Top 3 must-review items on your financial statement and how QuickBooks can help
QuickBooks offers many features that help
non-profit organizations leverage business
intelligence to make smart, informed
decisions throughout the year. Providing
data to clients in an organized, easy-to-
understand format arms them with the
information required to stay on a healthy
financial path.
View change in unrestricted net assets by program.
Compare restricted and unrestricted changes in
net assets year to date.
13. | 11
Non-profit financial reporting:
Top 3 must-review items on your financial statement and how QuickBooks can help
While not an exhaustive list, the tips offered in this eBook provide non-
profits with sound advice on what to look for in their financial statements.
By reviewing the key data points each month and leveraging the powerful
features in QuickBooks, stakeholders can stay informed on cash flow, net and
gross assets, profit margins, and the overall financial health and sustainability
of their organization.
Final thoughts...
Learn more about how QuickBooks can provide you with better data and
insights to grow your non-profit organization:
QuickBooks Online Advanced for reporting & insights.
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