Other Pages in Bookkeeping & Quickbooks

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• Business Planning
• • Business Planning Resources and Links
  • Business Plans and Financing Proposals
  • Sample Business Plan Outline
  • Strategic Planning and SWOT Analysis
• Employee and Subcontractor Information
• • Employee vs. Subcontractor: What’s the Difference & Why You Should Care
  • Help Paying for Health Insurance Through the Insurance Partnership
  • What’s the Massachusetts WorkShare Program?
  • What's the Real Cost of an Employee?
  • IRS - Independent Contractor or Employee
  • MA - Unemployment Insurance Guide for Employers
• Nonprofit Information
• • The New Form 990: What Does it Mean for Smaller Nonprofits?
• Tools and Resources
• • Bookkeeping Resources and Links
  • Bookkeeping Task List
  • Frequently Asked Bookkeeping Questions
  • Jo Landers Bookkeeping Clients
  • Tax Saving Tips for Married Gay Couples

See also Payroll Services

Cost Allocation for Nonprofits

One aspect of nonprofit bookkeeping that isn't always necessary with for-profits is the need to allocate all revenue and expenses between the two major categories of supporting activities (administrative overhead or management & general and development or fundraising and membership) and program services, which result in goods or services distributed to beneficiaries which fulfill the purpose or mission of the organization.

Often the broad category of program services is further subdivided into smaller programs or activities which the organization wants to track separately, or by restricted funds, grants, or other revenue sources used for specific purposes, especially when the funder requires reports showing how their money was spent. This is also how an organization is able to tell funding sources things like ’xxx% of every dollar received goes to programs.’ However, whether or not they track specific programs or grant-related income and expenses, nonprofits must at least allocate everything to the broad categories in order to file tax returns.

It is important for senior staff and management to understand cost allocation and the methods their organization uses. Government or private grants may disallow certain expenses; when developing budgets, the organization must be aware of 'hidden costs' which will need to be coverd out of general funds. Many donors want to know how much of their funding will go into direct services; if senior staff don't understand why cost allocation is important they are less likely to enforce accurate time and expense tracking within their departments; in this case a disproportionate share of expenses usually ends up in supporting activities. Finally, for general budgeting and cash flow management, it's important to understand the direct and indirect costs and overhead expenses of the organization.