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Home › Accounting Careers › Nonprofit Accountant

Accounting for a cause: Learn to become a nonprofit accountant

Discover an accounting career that strives to make and track money—all for a worthy cause.

Nonprofit organizations need experienced accountants to help organize and regulate their finances so that the organization can continue advancing its mission, but nonprofit accounting can be a lot different than standard accounting for a business whose financial goals are usually straightforward: heed the bottom line and make money. Nonprofit organizations must make money too, but what they do with their funds and where they come from are much different than most businesses. It’s up to nonprofit accountants to ensure that their money is spent, tracked and reported appropriately.  

What is nonprofit accounting? 

Nonprofit accounting is the process in which nonprofit organizations track, plan for and report on their finances.  

Nonprofits typically earn their money from donors and contributors to keep their charitable operations running smoothly, but donors have the right to determine how their donations are used. Nonprofit accountants, therefore, must ensure that donor funds are spent appropriately and in alignment with the restrictions that donors set. They do this through a process called fund accounting. This means that nonprofits allocate their money into different funds to be used for specific purposes. A donor who wants their money to go towards a particular purpose may request that it be put into a restricted fund. If they don’t have these kinds of spending requirements, the organization—with the guidance of their accountants—could decide to put the money into an unrestricted fund to cover overhead or other expenses.  

“Some organizations earn their money as earned income where they do offer programs versus just relying solely on donations,” said Samantha Kreiter, Group Accounting Manager for Jitasa, an accounting firm that works exclusively with nonprofit organizations. “Each nonprofit can have a variety of income and how their structure is based depends on whether they’re more grant focused, donation focused or contract focused. What their mission is and what their programs are will tie into what their main revenue source typically stems from.” 

Another aspect of nonprofit accounting that’s different from standard for-profit accounting is making sure nonprofit organizations follow what’s known as the non-distribution constraint. This constraint means that nonprofits cannot distribute extra funds to organization leaders or stakeholders—it must be reinvested in the organization’s mission. 

What nonprofit accountants do

Nonprofit accountants perform many of the same functions as other accountants, with some exceptions that include various documentation requirements which are unique to nonprofit organizations. In general, most nonprofit accountants can expect to perform the following duties:  

• Prepare financial statements such as the statement of financial position, statement of activities, statement of functional expense, statement of cash flow and more 
• Ensure that all financial statements and documentation are accurate and compliant 
• Prepare expenditure reports for grantors and donors 
• Make budgeting suggestions for how to further the organization’s mission with the resources available 
• Help prepare tax returns and provide tax-related assistance 
• Communicate vital financial information to organization leaders and provide actionable insights 

Kreiter said that grant compliance and reporting is one of the major differences between nonprofit and corporate, for-profit accounting.  

“It could be a little tricky when you’re managing restricted funds versus unrestricted funds. Some of our nonprofits will receive one really large, maybe a million-dollar grant but it’s very restricted, so their bank account shows that they have a million dollars but what they can spend those million dollars on is restricted to something very specific. In reality, it may not actually cover all of the overhead [expenses]. So cash flow management is obviously important with any business, but especially a nonprofit.” 

Preparing financial reports for grantors and donors can also become complicated if they all want information presented to them in different ways.  

“The tracking of those grants and their expenditures is really important. Grantors, especially large grantors, they do have requirements where you are sending them a statement of financial activity and transaction details. Some grantors will even request the actual invoices or supporting documentation for each of those expenses, so the level and variety of reporting requirements will obviously be based on the donor or the grantor for themselves. They can be very tedious or they can be very high level, just depending on the organization,” Kreiter said.  

Though nonprofit accountants may not be the one filing taxes on behalf of the organization, Kreiter said that nonprofit accountants should at least be familiar with Form 990, an annual tax form that nonprofits must provide to the IRS. 

“Working as a nonprofit accountant like myself, I don’t file the 990 but it still is a topic of conversation that comes up regularly. It’s something that nonprofit accountants should be very familiar with because it really does structure the ‘why’ behind what we’re doing, why the financials are set up the way they are,” Kreiter said.  

Another reason it’s important for nonprofit accountants to be familiar with Form 990 is to ensure that the nonprofit’s functional expenses are being properly tracked since it has some unique reporting requirements.  

“Special events and fundraising are typically reported a little differently on the 990, for example, so in order to be able to report that on a 990 differently, you’re having to make sure that you’re recording that information properly throughout the year,” Kreiter said. 

Requirements to become a nonprofit accountant

Becoming a nonprofit accountant is more or less the same as becoming any other kind of accountant, which comes down to a combination of relevant education and experience. Some accountants may also pursue additional licensure and certifications. Specific jobs may require their employees to have certain licenses and credentials, but this varies from employer to employer.  

What it’s like to work as a nonprofit accountant

Kreiter said that perhaps the greatest part of working as a nonprofit accountant is contributing to mission-driven work.  

“…perhaps the greatest part of working as a nonprofit accountant is contributing to mission-driven work.”

“Even though we’re doing accounting behind the scenes, the work that we’re doing has a bigger purpose. Being able to see a nonprofit apply for a grant that is life-changing for the organization, help get their financials to where they need to be and get structured for that, and then see them get awarded that grant and help set up their growth systems and how are they going to evolve the organization—that is why we do what we do at Jitasa. There’s such a bigger purpose to the accounting and technical skills that we bring.” 

Another advantage of working for a nonprofit, Kreiter said, is that there is less of the cutthroat nature of maximizing profits which can sometimes plague for-profit accounting.   

“Because we’re a nonprofit, there’s less focus on profit so we’re not necessarily talking about maximizing profits and cutting things here and there. It really is about asking, ‘How can we grow the mission farther? How can we take these funds and really maximize them?’”  

Nonprofit accounting can also involve a broader range of responsibilities than other accounting jobs, which may be seen as an advantage or disadvantage depending on the individual.  

“You may be involved in budgeting one day, donor reporting another day, grant management, compliance, etc. This job is all encompassing,” Kreiter said. “I like the variety of work, it adds a little spice to the day. And it also ensures that we’re staying on top of our knowledge. We’re always growing and developing our skill sets as well, because things are always evolving and changing in accounting and in the nonprofit realm as well.” 

But nonprofit accounting isn’t without its drawbacks, either. Restricted funds can lead to tighter budgeting restraints, for example, and staff at nonprofits often wear a lot of hats and may even perform multiple jobs. When employees are stretched thin, it can make it difficult for a nonprofit accountant to get the information they need if the employees don’t know where or how to find it.  

“There can also be quite a bit of complexity around compliance,” Kreiter added. “You could have 10 grants, and they could all have very different reporting requirements, restrictions, everything.” 

How much do nonprofit accountants make? 

Factors including geographic location, years of experience, credentials, education level, employer type and more all affect your earning potential as a nonprofit accountant. The U.S. Bureau of Labor Statistics (BLS) does not have data on how much nonprofit accountants make specifically, but they do report that the median annual salary for accountants and auditors in general is $81,680.  

You might have a better chance to earn more working for an accounting firm compared to working directly in the finance department of a nonprofit organization. These accountants may be subject to the same budgeting restraints that the entire organization must contend with, so higher salaries may be more difficult to come by.  

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