Guide · 8 min read
Fund accounting, restricted donations, and Form 990 prep — explained for executive directors who'd rather be running the mission.
When a donor restricts a gift, you have a legal obligation to spend it on that purpose. A regular P&L can't show that — you need to know, at any moment, how much restricted money is unspent in each fund. That's fund accounting.
Use the UCOA (Unified Chart of Accounts for Nonprofits) as a starting point. Add income classes for each grant or major donor restriction.
Donations land in a specific fund. Expenses are tagged to the fund they draw from. This is non-negotiable — auditors will ask for it.
Donated services or goods over $5k need to appear on Form 990 Schedule M. Record them at fair market value with a corresponding expense.
Statement of Activities (income & expense by fund), Statement of Financial Position (assets, liabilities, net assets). Boards expect both — every month.
SnapBooks tracks restricted funds, generates board financials, and exports Form 990-ready data.
Start freeNonprofits use fund accounting — money is tracked by purpose (unrestricted, temporarily restricted, permanently restricted) rather than just income vs expense. A donor who gives $10k for scholarships can't be spent on rent, and your books need to prove that.
Yes if you're a 501(c)(3). Form 990 (or 990-EZ / 990-N depending on revenue) is due by the 15th day of the 5th month after fiscal year-end. Missing three in a row revokes your tax-exempt status — automatic and brutal.
Create a separate income account per restriction: 'Donations — Scholarship Fund', 'Donations — Building Fund'. Expenses against them post to matching expense accounts. Net activity per fund should be on every monthly report.
Generally no federal income tax, but you owe payroll tax on staff, sales tax on most purchases (some states exempt), and UBIT on unrelated business income (e.g. a coffee shop your nonprofit runs).
A chart of accounts with class/fund tagging, monthly bank reconciliation, separate tracking of in-kind donations, and quarterly board financials (Statement of Activities + Statement of Financial Position).