Non-Profits and Bookeeping Issues
The financial aspect of not-for-profit businesses is very different than for profit businesses. While there are many aspects to consider in any business, non-profits have their own set of rules to ensure financial transparency. In this article we will go over some of the differences, and why is would be best to employee bookkeeping services for financial management of a nonprofit organization
Most forms of income to a non-profit are in the form of contributions, such as donations. Contributions are categorized in 3 ways: restricted, unrestricted, and endowment.Restricted: Restricted Donations are donations that have a limitation put on them by the donor. For example if money is donated specifically for building renovations it cannot be used for anything else.
Non-Restricted: Non-Restricted donations are the opposite: money donated without instructions or limitations. It can be used for anything in relation to the non-profits organization, from infrastructure to administrative costs.
Endowment: An endowment is a sum of money given to a non-profit for the non-profit’s continues success and financial stability. There are very specific guidelines regarding taxes with endowments, so it is important to employ professional bookkeeping services
Non-Profit financial reporting is broken into 2 different categories: Statement of Operations and Statement of Financial Position.
Statement of Operations: Statement of Operations is the internal reporting for the non-profit organizations. It includes things like budgets, audits and a comparison of projected costs and actual costs.
Statement of Financial Position: This is the external reporting, and is used to show where exactly the money was spent. Donors, funders, and the CRA will all want to know how and where money was moved, and having a report will provides financial transparency for all involved.
While Non-Profits are generally tax exempt they will still need to file certain paperwork with the CRA. Often times this is overlooked, but there can be some pretty steep penalties for not filing. It can end up costing the Non-Profit 25$ a day, up to 2,500, which can be a huge hit to a non-profit’s budget.
A Non-Profit having more than 10,000$ worth of property income annually, or more than 200,000$ in assets, will have to file a T1044 with the CRA. This is an Organizational Information Return, and must be filed in conjunction with an income tax return. There are penalties for not filing within 6 months of the end of the year. Hiring a professional to handle the tax issues would be helpful, as there are many different aspects that need to be considered.
Non-Profits have some very complicated financial issues that people may not be aware of. It may be best to hire someone to perform the bookkeeping services so that the non-profit does not spend unnecessary funds on fixing preventable problems. If money is tight and budget constraints are an issue, as around the community to see if a tax consultant or finance consultant is willing to volunteer some hours to help.