In many ways, accountants are a lot like authors or biographers — only instead of words, they use numbers to tell a story about how a given individual, company, or organization has fared financially, whether in terms of overall revenue, profits and losses, or working capital. Similar to professional writers, this requires a special blend of skills to give a truly accurate depiction of the subject material, whether that “character” is an individual or business.
But what about nonprofit entities? With over 1.5 million nonprofits currently operating in the U.S., according to the National Center for Charitable Statistics, what do they use to tell their story from a dollars and cents perspective? There’s a specialty for that.
It’s called not-for-profit accounting, and while those who are in this line of work engage in many similar activities as traditional accountants, they confine their services to religious groups, charities, educational institutions, and other entities that fall under the nonprofit banner.
If this sounds like a division of accounting that you might be interested in, or it’s something you’ve always wanted to do but weren’t sure where to start, a great place to begin the journey is with a master’s degree in accounting from the Collat School of Business at the University of Alabama at Birmingham. The award-winning faculty and comprehensive curriculum can supply you with the competencies you need to succeed in this accounting genre and enable you to participate in causes and campaigns that are truly meaningful.
What is not-for-profit accounting?
Generally speaking, businesses exist for one overarching reason: to make. This is accomplished by selling a product or service demanded by customers who want or need it. Nonprofit organizations, meanwhile, aim to promote a cause that is advantageous to a group or society overall. The funds they acquire — through donations and charitable support — go toward that cause.
Because of their central mission, nonprofits frequently receive tax-exempt status from the federal government. 501(c)(3) organizations are eligible to avoid certain types of financial reporting and are also typically absolved from paying federal income taxes on revenue, pending approval from the Internal Revenue Service. These funds may come from fundraising or donations.
Their tax-exempt status, however, does not free them from other types of financial reporting. For instance, instead of drafting a balance sheet and filling in the required information, nonprofits may need to draw up a statement of financial position. This is similar to a balance sheet in terms of on the details it provides (e.g. assets, liabilities, equity, etc.), but it is specific to nonprofits.
Another related yet slightly different form that nonprofit organizations use in financial reporting is a statement of activities. Whereas a private business would use an income statement to report earnings to the government, a statement of activities focuses on a nonprofit organization’s net assets, which is the amount of money it has from contributions and fundraising after subtracting any existing expenses.
There are specific rules and processes required for these two reports alone. Others may include statements of cash flow, statements of functional expenses, form 990s and several others. Nonprofit accountants must ensure administrative-related activities are actively addressed on an ongoing basis so the organization’s main purpose — whether it’s reducing poverty, championing environmental awareness efforts, or fighting against human rights abuses — can continue.
In short, just as government accounting is exclusive to examining, interpreting, and recording the financial affairs of the public sector and agencies, not-for-profit accounting is specific to the unique financial dealings of charitable and other cause-oriented groups.
In other ways, the duties of not-for-profit accountants and traditional accountants overlap. As noted by the U.S. Bureau of Labor Statistics, they include, but aren’t limited to, the following:
- Review financial statements to ensure they comply with laws and regulations established by the IRS
- Organize and maintain financial records
- Make recommendations for how to reduce operating expenses
- Maintain accurate records through bookkeeping best practices
- Update and make regular use of accounting software
- Offer suggestions on how an organization can better allocate funds or save money
The online Master of Accounting program at UAB can provide you with many of the competencies you need to excel as an accountant. Through core courses like Governmental and Not-for-Profit Accounting, Current Topics in Financial Accounting, and Tax Entities, students can gain practical experience that can be put to use in the workplace.
What kinds of skills are ideal for nonprofit accountants?
Because so many of their day-to-day responsibilities involve data crunching and compiling, accountants should enjoy math and working with numbers. To truly excel, though, they also need a good blend of hard and soft skills. Here are a few of them:
Strong budgeting abilities
As their title implies, nonprofit organizations do not generate profits; they exist primarily through the donations made by people and businesses that are willing to give back. However, the amount that comes in at any given time can vary significantly, often depending on the economy and the organization’s fundraising efforts. Also, because the funds that come in are devoted to a particular cause, it requires a delicate balance to maintain the cost of overhead so bills are paid and expenses are addressed. As a result, nonprofit accountants must excel in budgeting so funds are adequately allocated to the proper channels, whether by spending or saving for later use.
Attention to detail
Attention to detail is truly important to an accountant’s ongoing success. This is particularly true for not-for-profit accounting. A classic example is with net assets. They can be classified in one of two ways: with or without donor restrictions. Assets without donor restrictions mean the nonprofit that received the donations has more options in terms of where those funds are used. When they’re with restrictions, however, the funds must be put toward a specific purpose.
Nonprofit accountants need to be sure that funds are apportioned correctly and must make these “assets with” and “assets without” distinctions in their statement of activities financial reporting.
In some ways, accounting is its own language, filled with various phrases that may be familiar to others who specialize in this line of work, but sound foreign to most others. Thus, all accountants must be adept in interpreting the information they receive and communicating it so it makes sense to laymen. This is especially true in the not-for-profit space, as decision-makers may have other responsibilities that prevent them from learning more about accounting but still require a high-level overview so reports can be sent to the IRS or other regulatory agencies. Not-for-profit accountants may need to bottom line certain complicated concepts to advance understanding.
Familiarity with auditing
Nonprofits and for-profit entities may hire someone who specializes exclusively in auditing, as this process is something that is critical to bookkeeping and ensuring compliance. Yet since auditors and accountants have responsibilities that frequently overlap, accountants should have a basic level of understanding of what auditing entails so these often time-consuming processes can be streamlined.
A nose for news
Rules and regulations in the accounting space are in an almost constant state of flux, which explains why Certified Public Accountants must participate in continuing professional education to maintain their CPA status. In short, today’s rules may be different a year from now.
Similarly, not-for-profit accounts must stay up to date with any administrative changes announced by the IRS. For instance, as recently reported by The Wall Street Journal, a new rule exempts most 501(c)(3) groups from being required to reveal the names and addresses of “major” donors, meaning those that give $5,000 or more. Previously, this information had to be specified on 990 forms.
Not-for-profit accountants who keep tabs on relevant rules can help nonprofits avoid unnecessary tasks, reduce costs, and improve operations.
Thanks to accounting software, any industry that was once steeped in lots of paper is now far easier to manage. However, going paperless has not diminished the number of forms and documents that organizations need for a variety of purposes. This is particularly true for nonprofits, who require clearance and authorization from the government to operate as tax-exempt organizations.
Nonprofit accountants should ideally be adept at maintaining impeccable records so documents are stored, delivered, or reported efficiently.
In a similar vein, since much of what accountants use to input data and send off reports is done electronically, it behooves accountants to be familiar with accounting software or business analytics programs. The more they know about it, the more valuable they can be to prospective employers. In a 2019 survey conducted by Robert Half, nearly 40% of chief financial officers considered business analytics to be a mandatory skill set among accountants and professionals in similar positions. Yet nearly one-third of respondents cited technological aptitude as an attribute that was difficult to find among jobseekers.
From Accounting Information Systems to Cost Accounting, the robust curriculum and learning outcomes that are available through UAB’s Master of Accounting program can provide you with the hands-on experience and working knowledge to advance your professional aspirations. Apply today or speak to an enrollment advisor to learn more.