What is nonprofit fund accounting?

Fund accounting is an approach that organizes financial activity by the source and purpose of resources rather than only by account. In practice, that means an organization can report not only what was spent, but which fund, program, grant or funding source the activity belongs to, and what remains available for each.

What is grant accounting?

Grant accounting tracks revenue and expenditures associated with a specific award — within the grant period, against the approved budget and by the cost categories the funder recognizes. The objective is that grant activity can be reported and supported during the grant, not reconstructed afterward.

Can ESBS track multiple grants?

Yes. Accounting records can be structured so activity is tracked by grant, program, funding source or other reporting dimension appropriate to the organization, even where the organization operates through common bank accounts.

Can ESBS help with reimbursement grants?

ESBS can maintain the accounting and organize the supporting financial documentation used in reimbursement-based funding arrangements. The funder determines eligibility and approves reimbursement; ESBS supports the accounting and documentation process rather than guaranteeing any reimbursement outcome.

What is grant vouching?

Vouching generally refers to matching a recorded expenditure to its supporting documentation — for example an invoice, proof of payment, payroll support, contract or approval — so the expense can be traced and supported. Requirements vary by award and funding agency.

What is functional expense reporting?

Functional reporting presents expenses by what they were used for — program services, management and general, and fundraising — in addition to their natural classification, such as payroll, occupancy or professional fees. Form 990 reporting distinguishes these functional categories.

What is the difference between restricted and unrestricted funds?

Nonprofit financial reporting may distinguish net assets subject to donor-imposed restrictions from those without donor restrictions. Operationally, that means a single bank balance does not necessarily represent money available for general operations; some of it may be committed to a specific purpose or period.

Can ESBS prepare board financial reports?

Yes. ESBS can prepare recurring financial reporting packages designed for Executive Directors, Treasurers, Finance Committees and Boards, including budget-to-actual, cash position and program or grant reporting where appropriate to the engagement.

Can ESBS help clean up nonprofit books?

Yes. Cleanup work can include chart-of-accounts review, grant and program coding, balance-sheet reconciliation, receivable and grant expenditure reconstruction, payroll classification and reporting redesign.

Can ESBS work with our existing auditor or CPA?

Yes. ESBS can coordinate with the organization's independent CPA or auditor by maintaining reconciled records and preparing requested accounting schedules and supporting documentation.

Can ESBS help us prepare accounting records for an audit?

ESBS can assist with the accounting records, reconciliations, schedules and supporting documentation used in an audit, review or funder examination. Independent audit and attest services, when required, must be performed by an appropriately independent qualified provider.

Can ESBS help with budgets and forecasts?

Yes. ESBS can help develop and monitor organizational and program budgets, compare actual results against expectations and prepare cash-flow forecasts used for management planning.

Can ESBS handle nonprofit payroll?

Yes. ESBS provides payroll processing and related payroll tax filings, and can support the accounting where employee costs need to be associated with programs, grants or organizational functions.

Do we need a separate bank account for every grant?

Not necessarily. Separate bank accounts are not the same thing as grant accounting. Many organizations operate through common operating accounts while the accounting system tracks activity by grant, program, funding source or restriction. Some awards do impose specific banking or segregation requirements, so the applicable grant terms should be reviewed.

What should we send ESBS when starting a nonprofit accounting engagement?

Generally, recent financial statements, the current chart of accounts, bank and credit card statements, payroll records, a list of active grants with award documents and budgets, existing grant tracking spreadsheets, board reporting currently in use and the most recent Form 990 filed. ESBS will confirm what applies once we understand the organization.

Nonprofit Accounting

Nonprofit Accounting & Grant Management

Financial systems built around programs, grants, reporting requirements and the realities of running a nonprofit organization.

Nonprofit accounting goes beyond recording income and expenses.

Leadership may need to understand how funds are being used across programs, which expenses belong to particular grants, whether reimbursement documentation is complete, how actual spending compares with approved budgets, and what financial information should be presented to the board.

Evening Star Bookkeeping Services helps nonprofit organizations build and maintain accounting processes designed around those needs.

Discuss Your Nonprofit Explore Our Capabilities

Accounting • Payroll • Grant Tracking • Reimbursement Support • Financial Reporting • Advisory

What does nonprofit accounting require beyond ordinary bookkeeping?

When the Books Have to Answer More Than One Question

A single nonprofit expense may need to answer several questions at once:

What was purchased?
Which program benefited?
Which grant funded it?
Was the expense within the approved grant period?
Was it within the grant budget?
Is supporting documentation available?
How should it be classified for management reporting?
How should it be reflected in functional reporting?

$4,800 Payroll Expense

Employee
Program
Funding Source
Grant
Functional Classification
Reporting Period

This is why nonprofit accounting can break down even when the bank accounts reconcile. The transaction may be recorded correctly from a bookkeeping perspective but still lack the dimensions needed for grant and management reporting.

Built for Organizations Managing Mission and Money

Community Organizations

Local organizations delivering services funded through a mix of grants, contributions and program revenue.

Workforce Development Organizations

Programs where participant services, staffing costs and funder reporting requirements drive the accounting structure.

Human Services Organizations

Organizations managing multiple service lines, contracts and reporting deadlines at the same time.

Educational Organizations

Organizations with program budgets, restricted gifts and periodic reporting to funders and boards.

Membership Organizations

Associations and membership groups balancing dues revenue, program activity and governance reporting.

Arts & Cultural Organizations

Organizations with seasonal activity, restricted project funding and grant reporting obligations.

Foundations & Charitable Organizations

Organizations that make or receive charitable distributions and require clear records of purpose and period.

Organizations Receiving Government Grants

Awards with defined periods, approved budgets, cost categories and documentation expectations.

Multiple Programs or Funding Sources

Organizations where a single transaction may need to be reported in more than one way.

Nonprofit Financial Management Under One Roof

Nonprofit Bookkeeping & Accounting

Monthly transaction processing, reconciliations, account review, adjusting entries and financial reporting designed around the organization's reporting structure.

Grant Accounting

Track revenue and expenditures by grant, program, funding source or other required accounting dimension.

Grant Reimbursement & Vouching Support

Organize eligible expenditures and supporting documentation for reimbursement-based funding arrangements.

Payroll & Payroll Allocation

Payroll processing plus accounting support where employee costs need to be associated with programs, grants or organizational functions.

Budgeting & Forecasting

Develop and monitor organizational and program budgets and compare actual results against expectations.

Board & Management Reporting

Transform accounting data into financial information that Executive Directors, Treasurers, Finance Committees and Boards can understand.

Accounting Cleanup

Reconstruct and organize books that have become difficult to reconcile, report from or use for grant documentation.

Financial Controls & Process Design

Help establish practical accounting workflows, approval processes, documentation practices and reporting routines.

Discuss Your Nonprofit

Grant Accounting That Starts With the Award

Grant accounting should not begin when a reimbursement request is due. The accounting structure should reflect the award from the beginning — the period, the approved budget and the cost categories the funder recognizes.

Grant award
Grant period
Approved budget
Programs / cost categories
Transactions
Supporting documentation
Budget-to-actual
Reimbursement / reporting

ESBS can help structure accounting records so management can monitor grant activity during the grant period rather than reconstructing everything later.

Knowing Which Dollars Can Be Used — and For What

Nonprofit financial reporting may distinguish resources subject to donor-imposed restrictions from those without donor restrictions. The IRS Form 990 instructions recognize net assets with and without donor restrictions for organizations following ASC 958.

The operational issue is simpler: a single bank balance does not necessarily tell management how much money is actually available for general operations.

What the records may need to identify

Restricted funding
Unrestricted funding
Board-designated amounts where applicable
Grant-specific balances
Program activity

The appropriate presentation depends upon the organization's circumstances and the terms attached to its funding.

The Grant May Be Awarded. The Cash May Not Be in the Bank.

Many grants operate on a reimbursement basis. The organization incurs an eligible cost, documents it, submits the required reimbursement package and then waits for payment. That creates an accounting problem and a cash-flow problem at the same time.

Organization spends
Documentation assembled
Reimbursement submitted
Funder review
Cash received

$100,000 spent before $100,000 received

Until the reimbursement package is submitted and approved, the organization is financing program costs from its own cash. Incomplete documentation or delayed submission extends that period.

Where ESBS fits

ESBS can help maintain the accounting and documentation process supporting reimbursement submissions, so eligible expenditures are recorded, coded and supported as they occur.

The funder determines eligibility and approves reimbursement. ESBS supports the accounting and documentation, and does not guarantee reimbursement outcomes.

A Ledger Entry Is Not the Same as a Complete Grant File

A recorded transaction may require supporting documentation before it can be reported or reimbursed. Depending on the grant, examples may include:

Invoice
Proof of payment
Payroll support
Timesheet or allocation documentation
Contract
Purchase documentation
Approval
Cost classification
Grant coding
Reimbursement period

Requirements vary by award

Not every grant requires every document. Grant requirements vary by award and funding agency.

ESBS can organize the accounting and supporting financial documentation around the requirements applicable to the engagement.

Discuss Grant Documentation

Program Director

$80,000 annual compensation

Program A40%
Program B35%
Administration25%

When One Employee Works Across Multiple Programs

Payroll accounting may need to do more than record gross wages. Where appropriate, payroll-related costs may need to be allocated among:

Programs
Grants
Management and general
Fundraising
Other appropriate functions

Form 990 functional expense reporting distinguishes program services, management and general, and fundraising expenses.

Allocation is not arbitrary. The accounting methodology should be supported by the organization's facts and the applicable requirements.

What Did We Spend — and What Did We Spend It On?

Nonprofit reporting often needs two views of the same expense: its natural classification and its function.

Natural classification

Payroll
Rent
Insurance
Professional fees
Supplies
Technology
Travel

Function

Program services
Management and general
Fundraising

Illustrative functional expense matrix: natural classification by function
Expense	Program	Management	Fundraising
Payroll	—	—	—
Occupancy	—	—	—
Professional Fees	—	—	—
Technology	—	—	—
Travel	—	—	—

Illustrative structure only. The amounts and allocation basis depend upon the organization.

A Budget Should Be a Management Tool, Not a Document Created Once a Year

Annual Budget
Monthly Actuals
Variance
Explanation
Forecast

Reporting levels

Where appropriate, budget-to-actual reporting can be prepared at the:

Organization level
Program level
Grant level

Questions the reporting should answer

Why is payroll over budget?
Which program is driving the variance?
Is a grant underspent?
Are administrative costs running above plan?
Will reimbursement timing create a cash shortage?

A Balanced Grant Budget Does Not Guarantee Cash in the Bank

Revenue, expense, reimbursement receivable and cash are four different things. Recording grant revenue as it is earned does not mean the related cash has arrived, and spending against an approved budget does not mean the funder has paid.

Timing differences arise between the date a cost is incurred, the date documentation is assembled, the date reimbursement is submitted and the date cash is received. Cash-flow forecasting turns those timing differences into something management can plan around.

Grant award

$500,000

does not mean

Cash available today

$500,000

Illustrative example. Actual timing depends upon the award terms and the funder's review process.

Financial Statements Should Help the Board Govern

Delivering a forty-page general ledger to the board is not meaningful financial reporting. Governance requires information the board can read, question and act on.

A useful board package may include

Statement of financial position
Statement of activities
Budget vs. actual
Cash position
Grant and program reporting
Material receivables and payables
Key variances
Management commentary
Other relevant KPIs

Not every board needs exactly this package. The appropriate reporting depends upon the organization, its funding and its governance practices.

Reporting the board can actually use

ESBS can design a recurring reporting package and prepare it on a consistent schedule, so each meeting starts from the same reliable information.

Talk to ESBS About Board Reporting

What Leadership Should Be Able to See

Cash

How much liquidity do we have?

Grants

How much has been spent and reimbursed?

Programs

Where are resources being used?

Budget

Where are we above or below plan?

Payroll

How are personnel costs tracking?

Receivables

What reimbursements are outstanding?

Runway

How long can current cash support operations?

When One Organization Has Five Grants and One Bank Account

Separate bank accounts are not necessarily the same thing as proper grant accounting. A nonprofit may operate through common operating accounts while the accounting system tracks activity by:

Grant
Program
Funding source
Department
Restriction
Project
Other reporting dimension

The exact structure depends on the organization and on any banking or segregation requirements contained in its awards.

Operating bank account

Accounting system

Grant A
Grant B
Grant C
Unrestricted operations
Program revenue

When the Books Were Not Built for Grant Reporting

Organizations grow. New grants arrive. Programs expand. Staff changes. The bookkeeping structure that worked at $300,000 of annual activity may not work when the organization manages several million dollars across multiple programs and funding sources.

Potential cleanup work

Chart of accounts review
Grant and program coding
Balance-sheet reconciliation
Receivable reconstruction
Grant expenditure reconstruction
Payroll classification
Prior-period cleanup
Documentation organization
Reporting redesign

Start from where things actually are

ESBS can review the current records, identify what needs to be reconstructed and propose an accounting structure that supports grant and management reporting going forward.

Discuss an Accounting Cleanup

Build the Records Before Someone Asks for Them

Where a nonprofit is subject to an independent audit, financial review, funder examination or other external reporting process, organized accounting records can make the process substantially more manageable.

ESBS may assist with:

Reconciled books
Schedules
Supporting documentation
Grant records
Payroll information
Fixed asset information
Receivable and payable support
Requested accounting schedules
Coordination with the organization's independent CPA or auditor where appropriate

An important distinction

Independent audit and attest services, when required, must be performed by an appropriately independent qualified provider.

ESBS supports the organization's accounting records and coordinates with that provider; it does not perform the independent audit.

The Accounting System Ultimately Feeds External Reporting

Most tax-exempt organizations have annual IRS filing obligations under the Form 990 series, depending on their circumstances. The underlying accounting records affect the quality and efficiency of that reporting.

Examples of information drawn from the accounting records include:

Revenue
Expenses
Functional classifications
Compensation
Assets and liabilities
Grants
Programs
Related organizations
Other required disclosures

Talk to ESBS About Nonprofit Year-End Readiness

A Strong Nonprofit Finance Function Runs Every Month — Not Just at Year-End

01Transactions recorded
02Bank and credit accounts reconciled
03Payroll recorded and allocated
04Grant activity reviewed
05Receivables and reimbursements updated
06Balance sheet reviewed
07Budget-to-actual prepared
08Exceptions investigated
09Management reporting produced
10Open items carried forward

The exact workflow depends upon the scope of the engagement.

How ESBS Approaches a Nonprofit Engagement

Step 1

Understand

Organization structure
Programs
Funding sources
Grants
Reporting requirements
Payroll
Current accounting system
Board and management needs

Step 2

Assess

Chart of accounts
Balance sheet
Reconciliations
Grant tracking
Payroll workflow
Reporting
Documentation

Step 3

Design

Accounting structure
Programs, classes and projects
Grant tracking
Reporting package
Month-end workflow
Responsibilities

Step 4

Operate

Bookkeeping
Payroll where engaged
Reconciliations
Grant accounting
Reporting
Reimbursement support

Step 5

Improve

Budgeting
Forecasting
Dashboards
Controls
Process improvement
Management advisory

Support That Can Grow With the Organization

Foundation

Reliable monthly accounting.

Bookkeeping
Reconciliation
Payroll
Basic financial reporting

Grant & Program Accounting

Everything in Foundation, plus:

Grant tracking
Program reporting
Reimbursement support
Budget-to-actual
Payroll allocation

Finance & Advisory

Everything above, plus:

Forecasting
Cash-flow planning
Board reporting
Management dashboards
Process and control design
Financial analysis

Discuss the Right Level of Support

A Financial Partner for Leadership and Governance

Executive Director

Operational financial visibility.

Treasurer

Reliable accounting and reporting.

Finance Committee

Clear financial information and variance analysis.

Board

Understandable financial reporting.

Program Leaders

Program and grant budget visibility.

Grant Staff

Financial information supporting reporting and reimbursement.

Outside CPA / Auditor

Organized accounting records and requested schedules.

When Nonprofit Accounting Needs More Structure

We cannot easily tell how much remains on each grant.
Grant reports require manually rebuilding spreadsheets.
The board receives financial statements but struggles to understand them.
Payroll allocations are reconstructed at year-end.
Reimbursements are regularly delayed because documentation is missing.
The bank balance looks healthy but much of the cash is restricted or committed.
Budget-to-actual reports arrive too late to influence decisions.
The balance sheet contains old unexplained balances.
Different staff members maintain separate spreadsheets that do not reconcile.
Year-end reporting becomes a major cleanup exercise.

If several of these sound familiar, discuss your accounting structure with ESBS.

Discuss Your Nonprofit

Real-World Application

See How Grant Accounting Works in Practice

A community-based nonprofit needed a stronger process connecting grant expenditures, supporting documentation, reimbursement submissions and financial reporting. See how ESBS approaches the accounting workflow behind reimbursement-based funding.

Read the Grant Reimbursement Case Study

Nonprofit accounting questions

Nonprofit client resources

Practical checklists for organizations already working with ESBS — year-end information, grant documentation, reimbursement support and board reporting.

Nonprofit Client Resources All Client Resources

About Evening Star Bookkeeping Services

Evening Star Bookkeeping Services (ESBS) is an accounting, payroll and tax firm that has served individuals and closely held businesses since 1985. The firm works from 107 Prospect Street, Schoharie, NY 12157 and 12 East 49th Street, 18th Floor, New York, NY 10017, and incorporates the practice of Sherwood R. Veith, CPA. For nonprofit organizations, that work can include ongoing accounting, payroll, grant and program tracking, reimbursement support, financial reporting, budgeting and management advisory.

Day-to-day work covers bookkeeping and financial statements, payroll and payroll tax filings, individual and business tax preparation, and tax planning and advisory for S corporations, partnerships, real estate entities and taxpayers with foreign investments.

About the firm All services Sherwood R. Veith, CPA transition Contact ESBS (518) 295-8066

Related Services

Grant tracking, payroll allocation, reporting and year-end filings all draw on the same accounting records. ESBS can coordinate those pieces within one relationship.

Your Mission Is Complicated Enough. Your Financial Information Shouldn't Be.

Whether your organization needs reliable monthly accounting, stronger grant tracking, reimbursement support, payroll, board reporting or a more complete financial-management process, ESBS can help build a system around the way your organization actually operates.

Discuss Your Nonprofit Schedule a Meeting

Already an ESBS client? Visit Client Resources