--- title: "Nonprofit Bookkeeping: Funds, Grants and Reports | MCC" description: "How nonprofits track restricted and unrestricted money, grants, in-kind gifts, functional expenses and board reporting." url: "https://mcc-solutionsnj.com/bookkeeping/guides/bookkeeping-for-nonprofits" --- Bookkeeping guide · Updated October 12, 2026 # Nonprofit Bookkeeping: Funds, Grants and Reports A nonprofit does not exist to make a profit, but it still has to prove where every dollar came from and where it went. The books answer to donors, grantors, a board and the tax authorities, and each audience wants something slightly different. By [Matthew Coleman](/about), MCC Solutions **Quick answer.** A nonprofit's books must show the difference between unrestricted gifts, usable for any mission purpose, and restricted gifts, which must be used as the donor specified. Many organizations use classes or funds for each restriction. Want this handled for you? Monthly bookkeeping, cleanup and year-end close for small businesses. Start with a free health check of your books. [Free health check](/bookkeeping/health-check)[Get a quote](/bookkeeping/#interest) **Related:** [NJ 1099 contractor rule (ABC test)](/bookkeeping/guides/nj-independent-contractor-rule-abc-test-2026) · [Trial balance explained](/bookkeeping/guides/trial-balance-explained) · [Owner contribution or loan](/bookkeeping/guides/owner-equity-and-capital-contributions) **Free tools:** [Price per unit calculator](/bookkeeping/price-per-unit-calculator) · [Credit card fee calculator](/bookkeeping/credit-card-fee-calculator) [![Intuit ProAdvisor Gold tier badge](/img/credentials/intuit-proadvisor-gold.png)](https://proadvisor.intuit.com/app/accountant/search?searchId=matthew-coleman77)Gold tier in Intuit's ProAdvisor program. [See my Intuit listing](https://proadvisor.intuit.com/app/accountant/search?searchId=matthew-coleman77) Keeping your own books? Tallyfinch does invoices, bank import and reports on your computer. [See Tallyfinch](/bookkeeping/mcc-books-downloadable-bookkeeping-software) ## Restricted and unrestricted money Gifts come with strings or without them. An unrestricted gift can be used for any mission-related purpose. A restricted gift must be used as the donor specified, such as for a scholarship program or a building fund. Your books need to show the difference. Many organizations set up classes or funds for each restriction, then report net assets with and without donor restrictions. When you spend restricted money for its purpose, you release it from restriction. That release is a bookkeeping event worth recording, since otherwise your report will show a growing restricted balance that is already gone. ## Grants and pledges A grant agreement may be a contribution or an exchange for services, and the accounting is different for each. Read the agreement for conditions, such as matching requirements or spending milestones. Record multi-year pledges carefully, since you may recognize some of the amount now and some later. Your CPA or auditor can help you decide, and it helps to ask before the first payment arrives. ## Functional expenses Nonprofit financial statements usually split expenses into program services, management and general, and fundraising. To do that, each expense should be coded to a function, and shared costs such as rent and salaries need a sensible allocation based on time or space. Keep a short memo explaining the method so the same approach is used each year. ## In-kind gifts and volunteers Donated goods and services can be recorded as both income and expense at fair value under certain conditions. Donated time from volunteers usually is not recorded unless it requires specialized skills you would otherwise buy. Keep a donor acknowledgment letter for each gift. For larger noncash gifts, the donor, not you, is responsible for valuing the item. ## Reports, filings and controls Run a budget-to-actual report each month for the board, with restricted funds shown separately. Most exempt organizations file an annual information return with the IRS, and state charity registration or reporting may apply, so check the current requirements with each agency. Controls matter even in a small group: two people involved in handling cash, bank reconciliations reviewed by someone who does not write checks, and board approval for unusual payments. If you reach a size where audited or reviewed statements are required by a funder or a state, plan for it in advance. Clean books throughout the year turn an audit from a crisis into a routine. ## Questions a board treasurer should ask A treasurer does not need to be an accountant, but should ask a few steady questions. Are restricted gifts being spent only on their purpose? Do cash balances cover the next few months of payroll? Which grants are paid late, and what is receivable? Are the bank reconciliations finished and reviewed? A one-page dashboard with cash, receivables, and the budget variance makes these questions easy to answer at every meeting. ## Common questions **Do nonprofits need different software?** Not necessarily. Many small nonprofits use standard software with classes for funds and programs. Larger ones may need fund accounting tools. **Can a board member be the bookkeeper?** It is possible, but it weakens controls. Another person should review bank statements and approve payments. This guide is general information, not tax, legal or accounting advice. Rules, fees and due dates change; check with the IRS, the NJ Division of Taxation or a licensed professional for your situation. Let us handle it [### Monthly bookkeeping Categorizing, reconciling and monthly reports, with cleanup, payroll and NJ filings available. Bookkeeping →](/bookkeeping/) [### QuickBooks Online Monthly bookkeeping, cleanup and reconciliation in QuickBooks Online for New Jersey small businesses. Your account stays in your name. QuickBooks →](/bookkeeping/software/quickbooks-online) More guides - [Church Bookkeeping: Offerings, Designated Funds and Pay](/bookkeeping/guides/bookkeeping-for-churches) - [Bookkeeping for Photographers and Videographers](/bookkeeping/guides/bookkeeping-for-photographers) - [Freelancer Bookkeeping: A Simple System That Works](/bookkeeping/guides/bookkeeping-for-freelancers) - [Bookkeeping for Airbnb and Short-Term Rental Hosts](/bookkeeping/guides/bookkeeping-for-airbnb-hosts) Free tool - [Bookkeeping health check](/bookkeeping/health-check) [All guides](/bookkeeping/guides) Reach small business owners, freelancers and bookkeepers who read this guide: [advertise here](/advertise#bookkeeping). Do it yourself ### Nonprofit Treasurer Bundle Track funds, report against the budget and start the books with a sensible account list. [See what's inside ($65)](/toolkits/nonprofit-treasurer-bundle)14-day full refund Excel workbook ### Nonprofit Treasurer's Workbook Record income and spending by fund, see what each restricted fund still holds, catch gifts that still need a thank-you letter, and give the board a one-page report. [See what is inside ($39)](/toolkits/nonprofit-treasurer-workbook) [Try the free starter](/toolkits/nonprofit-treasurer-workbook#free-starter) Also in the [Nonprofit Treasurer Bundle](/toolkits/nonprofit-treasurer-bundle): 3 products for $65 instead of $87 separately. Tallyfinch ### Books you keep on your own computer Tallyfinch does invoices, bills, bank import, reconciliation and the main reports, in a file you own. $99 once, then $5 a month for updates; the app keeps working if you stop the plan. It does not do payroll or sales tax filing. The free download records up to 60 entries. [See Tallyfinch](/bookkeeping/mcc-books-downloadable-bookkeeping-software) [Download it free](/tools/pro/trial/mccBooks) [Compare the three apps](/software) ## Rather have us keep the books? Ask for a quote. [Get a Quote](/bookkeeping/#interest)[Call (908) 444-6373](tel:+19084446373)