What Financial Records Should a Nonprofit Keep?

Accurate financial records are essential for nonprofit organizations. Good recordkeeping helps support Form 990 preparation, financial reporting, grant management, budgeting, donor accountability, and ongoing tax compliance.

Rather than trying to reconstruct financial activity at the end of the year, nonprofits should maintain organized records throughout the year.

Why Is Nonprofit Recordkeeping Important?

Nonprofits receive and spend money from a variety of sources, including donations, grants, program fees, fundraising activities, and other revenue.

Clear financial records help an organization understand where its money comes from, how it is being used, and whether expenditures are properly connected to its programs and operations.

These records also provide the information needed for annual tax and financial reporting.

What Income Records Should a Nonprofit Keep?

Organizations should maintain documentation supporting the revenue they receive.

Depending on the nonprofit, this may include records for:

• Donations and contributions

• Grants

• Membership dues

• Program service revenue

• Fundraising revenue

• Sponsorships

• Investment income

• Other business or miscellaneous income

Keeping different revenue sources properly categorized can simplify year-end reporting.

What Expense Records Should Be Maintained?

Nonprofits should also keep clear documentation for organizational expenses.

Useful records can include:

• Vendor invoices

• Receipts

• Bank and credit card statements

• Payroll records

• Contractor payments

• Rent and occupancy costs

• Professional fees

• Program expenses

• Fundraising expenses

Expenses should be categorized consistently within the organization's accounting system.

Why Should Program and Administrative Expenses Be Separated?

Nonprofit financial reporting often distinguishes among program services, management and general expenses, and fundraising expenses.

Properly tracking these categories throughout the year makes it easier to prepare accurate financial statements and Form 990.

Waiting until year-end to determine how expenses should be allocated can make the process considerably more difficult.

What Donation Records Should Be Kept?

Organizations should maintain records supporting contributions received from donors.

Depending on the contribution, records may include:

• Donation amounts

• Donation dates

• Donor information

• Contribution acknowledgments

• Noncash contribution information

• Restrictions placed on contributions

• Supporting correspondence

Certain contributions can also create additional acknowledgment or reporting requirements.

What About Grants?

Grant-funded organizations should maintain documentation showing both grant revenue and how grant funds were used.

This can include grant agreements, award letters, expense documentation, reimbursement requests, financial reports, and records showing compliance with grant restrictions.

Separating grant activity within the accounting system can make reporting to funders significantly easier.

Should Bank Accounts Be Reconciled?

Yes. Regular bank and credit card reconciliations are an important part of maintaining accurate nonprofit books.

Reconciliation helps confirm that transactions recorded in the accounting system correspond with actual financial-account activity.

It can also help identify duplicate transactions, missing entries, incorrect amounts, or other bookkeeping issues before they accumulate.

What Governance Records Should Be Maintained?

Financial records are only part of a nonprofit's documentation.

Organizations should also maintain relevant governance and organizational records, such as:

• Formation documents

• Bylaws

• Tax-exemption documentation

• Board meeting minutes

• Significant contracts

• Conflict-of-interest documentation

• Important organizational policies

• Prior tax filings

These records can provide important support for governance and compliance matters.

How Long Should Records Be Kept?

There is no single retention period that applies to every type of nonprofit record.

Tax filings, payroll documentation, employment records, corporate documents, grant records, and contribution records can each have different retention considerations.

Organizations should establish a written record-retention policy appropriate for their activities and applicable legal requirements.

Keep Your Nonprofit's Books Organized Year-Round

Consistent bookkeeping and organized documentation can make tax preparation, financial reporting, budgeting, and compliance much easier.

James Ridout CPA provides nonprofit bookkeeping, financial reporting, Form 990 preparation, account reconciliations, record cleanup, and ongoing nonprofit accounting support.

Need help organizing or maintaining your nonprofit's financial records? Schedule a consultation with our team to discuss your accounting and reporting needs.