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The Importance of GAAP Accounting for Nonprofits

GAAP accounting

Your nonprofit organization adds some good to this world. You, your employees, your volunteers, and those your organization serves, all know how much good your organization does. They know where your revenue goes and they trust you will continue to use it wisely. But what about potential donors, grantors, and certain governing bodies? How do you present your organization’s financial information to them?

GAAP, which stands for Generally Accepted Accounting Principles, is used to standardize how an organization’s financials are recorded and displayed. The principles are based around the idea of creating consistent and transparent reports. GAAP compliance allows outside parties to more easily make fact-based decisions.

Increase Your Revenue

Your organization needs outside funding to be successful. Funding, unfortunately, doesn’t just come from thin air; your organization needs to find it. Without GAAP, potential donors might not have full confidence in your nonprofit. And people generally don’t offer money when they can’t be sure of where it’s going.

GAAP compliant financial reports ensure your organization puts its best foot forward. Private foundations might require these reports before awarding grants. Banks might demand them before granting a loan. GAAP compliance offers credibility and allows you to compare one organization to another—letting donors feel confident that their funds are making a difference.

Make Your Audits Easy

GAAP compliance allows you to accurately track all expenses and quickly provide reports proving it. Auditors will spend less time going through your financials. And that means you’ll spend less time away from productive activities.

Protect Your Credentials

Your nonprofit’s credentials allow you to function…and GAAP allows you to maintain them. GAAP compliance is even required by some entities. Some state regulators require GAAP financial statements if revenue is over a certain level. Accreditation for education and health care organizations generally require GAAP financial statements. Even some rating agencies will only rate your organization if you adhere to GAAP standards. By not adhering to GAAP standards, you risk losing your accreditation or even your nonprofit status.

By using GAAP, your nonprofit can be transparent when displaying your financial data. These principles help your nonprofit increase your revenue stream, save you time and money, and help protect your credentials. They are an essential part of your accounting. So why risk not using them?

Cougar mountain software is the creator of Denali Fund, a complete accounting solution specifically designed for nonprofits. To learn more, contact us at (800) 388-3038 or sales@cougarmtn.com.