Budgeting Basics and Beyond

24.3. Recordkeeping and Reporting

Prepare an individual budget for each fund group and a total budget for all funds combined. Funds may be restricted or unrestricted: restricted funds are restricted by outside agencies or persons, whereas unrestricted funds have no external restriction as to use or purpose.

Financial reports for nonprofit entities, except for hospitals and health and welfare agencies, typically reflect the sources of attained dollars and the ways those dollars have been used in reporting the results of their overall operations. Minimal attention is placed on measuring the benefits that these organizations have provided from their resources.

A host of differences in accounting methods between the nonprofit sector and the private sector may materially impact nonprofit budgeting procedures. Fund accounting is practiced in most areas of the government sector. An entity that employs fund accounting will report a balance sheet and statement of activity for each fund. Fund accounting requirements may make the budgeting process more difficult, because a single transaction may need to be classified in more than one way, including by source, by function or program, by responsibility unit, and by natural object of expenditure. The budget must be prepared along these same lines.

Many nonprofit entities use either the cash basis method to account for revenues and expenses or the modified accrual method. Under the latter, the cash basis books are converted to accrual at year's ...