Bookkeeping and Record Keeping for Registered Charities
Bookkeeping and record keeping are essential for registered charities to stay compliant with legal rules and maintain trust with donors.
You need to keep accurate financial records, track donations, expenses, and important documents to meet regulatory requirements and show transparency. This helps you manage your charity’s funds properly and avoid problems with tax authorities.
Your records should include details like donations received, how money is spent, board meeting minutes, and proof of your charity’s activities.
Good bookkeeping supports reporting to the government and helps you communicate your impact clearly to supporters.
Without careful record keeping, it becomes difficult to prove your charity’s work and financial health.
Core Bookkeeping and Record Keeping Requirements
Your registered charity must maintain clear and organized financial records to comply with legal rules.
These records include detailed documentation of income, expenses, and key organizational activities.
Keeping accurate books and records supports transparency and helps with audits or financial reviews.
Definition of Books and Records
Books and records are detailed documents that show all financial and administrative activities of your charity.
This includes your general ledger, which tracks all financial transactions like donations, grants, and expenses.
You must keep bank statements, receipts, invoices, and payroll records.
Meeting minutes and official organizational records are also part of your recordkeeping.
These documents prove how your charity manages funds and carries out its purpose.
Good bookkeeping tracks every dollar coming in and going out.
This ensures your charity’s financial health is clear and verifiable.
Importance of Accurate Record Keeping
Accurate record keeping is essential for your charity to prove compliance with tax laws and regulations.
It protects your organization during IRS examinations by providing clear evidence of income and expenses.
Well-maintained records help you prepare annual returns, like Form 990, and track unrelated business income if applicable.
Clear records also support financial transparency, helping your board and donors trust your management.
Poor record keeping increases risks like penalties, audit delays, or loss of tax-exempt status.
Detailed and organized records let you respond quickly and confidently to any financial questions.
Retention Periods for Documentation
You are required to keep your financial books and records for a specific time.
Usually, documents should be retained for at least 3 to 7 years depending on local laws and the IRS.
Important records to keep include your general ledger, bank statements, donor records, receipts, and meeting minutes.
You might need them longer if your charity is under audit or involved in legal matters.
Organize your files so you can access documents easily.
Keeping digital backups alongside paper copies protects your records from loss or damage.
Following retention rules helps you stay compliant and ready for reviews.
Legal and Regulatory Compliance for Charities
Your charity must follow specific laws and rules to keep its tax-exempt status and operate legally.
This means you need to file the proper forms, maintain key documents, and understand the risks if you fail to meet requirements.
Tax-Exempt Status and Reporting Obligations
To keep your tax-exempt status, you must operate according to rules set by tax authorities like the IRS in the U.S.
Your charity needs to have articles of incorporation and bylaws that outline your mission and governance structure.
You must track all income and expenses accurately.
This allows you to fill out forms such as Form 990 or Form 990-N (the electronic postcard) each year.
These reports explain your financial activities and prove you follow nonprofit rules.
If your charity earns income unrelated to its mission, you may have to file Form 990-T and pay tax on that income.
Proper record keeping ensures that you can support everything you report to the IRS.
IRS and CRA Filing Requirements
In the U.S., most tax-exempt charities must submit Form 990, 990-EZ, or 990-N annually to report their finances.
The IRS requires you to keep all records, including receipts, donations, and minutes from meetings.
This makes audits easier and keeps your organization transparent.
In Canada, the CRA has similar filing rules for registered charities.
You need to complete the T3010 Registered Charity Information Return and keep financial documents ready for inspection.
Missing or late filings can lead to penalties or loss of status.
Keeping accurate, up-to-date records and understanding what forms apply to your charity will help you meet these obligations confidently.
Consequences of Non-Compliance
Failing to meet legal filing and record-keeping rules risks losing your charity’s tax-exempt status.
The IRS or CRA can impose fines, penalties, or revoke registration, meaning your organization would owe taxes and lose credibility.
Non-compliance can also hurt donor trust and affect your ability to raise funds.
You might face audits requiring you to produce detailed books and records, which can be time-consuming and costly.
To avoid these consequences, stay organized with your financial records, file all required forms on time, and ensure your charity follows its governing documents and tax regulations at all times.
Nonprofit Bookkeeping Principles and Standards
You need to follow specific rules and guidelines to keep your nonprofit’s financial records clear and accurate.
These rules help you track income and expenses properly and report them in ways that meet legal and tax requirements.
Overview of GAAP and FASB Guidelines
Your nonprofit’s bookkeeping must follow Generally Accepted Accounting Principles (GAAP).
GAAP sets the foundation for how you record, report, and disclose financial information.
These guidelines ensure transparency and consistency in your financial statements.
The Financial Accounting Standards Board (FASB) creates detailed rules that build on GAAP specifically for nonprofits.
These rules guide how you should handle donations, grants, and fundraising income.
For example, you must distinguish between restricted and unrestricted funds and report them separately.
Using GAAP and FASB standards correctly helps you avoid mistakes that could lead to legal issues or lost tax-exempt status.
It also builds trust with donors and stakeholders by showing that you manage funds responsibly.
Differences Between Nonprofit and For-Profit Accounting
Your nonprofit’s accounting is different from a for-profit business in important ways.
Unlike for-profits, where the goal is profit maximization, nonprofits focus on how funds support your mission.
One key difference is in how you report income.
You must track donations and grants separately and show how these funds are used for programs or operations.
Profit-driven businesses focus mainly on sales and profits.
Also, your nonprofit must clearly report restrictions placed by donors.
For-profits don’t usually have these kinds of restrictions.
Your bookkeeping should reflect this by separating funds into categories like temporarily restricted or permanently restricted.
These differences mean you need to use bookkeeping methods designed for nonprofits to stay in compliance and maintain your tax-exempt status.
Fund Accounting and Financial Management
Understanding how to organize and manage your charity’s funds is essential for clear financial oversight and legal compliance.
You need to track money based on its purpose and ensure donors’ wishes are followed.
Good financial management protects your charity’s assets and supports informed decisions by your board.
Fund Accounting Structure
Fund accounting divides your charity’s money into separate “funds” to keep transactions clear.
Each fund represents a set of resources with a specific purpose or restriction.
You will typically work with:
- Restricted funds: Money given for a particular project or use.
- Unrestricted funds: Money available for general operations and expenses.
This system helps you show how every dollar is spent and keeps accounting transparent.
It aligns with your fiduciary duties by ensuring funds are used properly and reported accurately to your board and regulators.
Fund accounting also separates net assets based on restrictions, which is critical for audits and financial reports.
Managing Restricted and Unrestricted Funds
You must carefully track restricted funds to avoid misusing donations.
These funds require spending only as donors or grant agreements specify.
Mishandling them can harm trust and lead to compliance issues.
Unrestricted funds give you flexibility to cover your charity’s daily needs and unexpected costs.
Managing both types requires up-to-date records and regular reconciliation.
Your financial management should include:
- Coding transactions by fund type.
- Reporting separately on restricted and unrestricted funds.
- Communicating fund status clearly to your board of directors.
This level of detail helps your board fulfill their oversight role and protects your charity’s reputation.
It also ensures your financial statements truthfully reflect the state of your net assets.
Donation and Income Tracking
You need to keep detailed and accurate records of all donations and other income your charity receives.
This includes tracking cash gifts as well as non-cash contributions, and making sure donors receive proper acknowledgments for their support.
Tracking and Recording Donations
You must record every donation promptly and clearly.
For cash donations, note the amount, date, donor’s name, and payment method.
If donors give $5,000 or more, you must keep extra details to meet IRS requirements.
Organize donation data so you can easily report it on your annual tax forms.
This helps with transparency and donor trust.
Use a consistent system, whether a software tool or manual ledger, to track donations.
Keep your records updated and accurate to avoid issues during audits or financial reviews.
In-Kind Donations and Contribution Records
In-kind donations are gifts of goods or services rather than money.
You must value these fairly and record them with details like donor name, description of the gift, and estimated value.
Tracking in-kind donations is essential because you report this information on tax forms and use it when demonstrating your charity’s impact.
Make sure to get written confirmation from donors about their in-kind gifts.
This can protect your organization and provide proof during financial audits or government checks.
Donation Receipts and Acknowledgements
For every donation, you must provide a receipt or acknowledgement letter.
This should include the donor’s name, the donation amount or description of the gift, and the date received.
Receipts are important for donors to claim tax deductions.
They also show your charity is transparent and organized.
Make acknowledgements timely.
For cash gifts, send receipts soon after receiving the donation.
For in-kind gifts, include an estimated value or note that the donor is responsible for determining value for tax purposes.
Financial Reporting and Essential Statements
You need clear, accurate financial statements to track your charity’s money and show how well you manage resources.
These reports detail your assets, income, expenses, and cash movement.
They help you meet legal rules and build trust with donors and regulators.
Statement of Financial Position
The Statement of Financial Position shows what your charity owns and owes at a specific date.
It lists assets, liabilities, and net assets (or fund balance).
Assets include cash, donations receivable, and equipment.
Liabilities cover debts like unpaid bills or loans.
This statement helps you check your charity’s financial health.
You can see if your assets are enough to cover your liabilities.
Accurate records here are vital because this report is part of your annual filings to regulators and key for board decisions.
Statement of Activities
This is also called the income statement.
It tracks your charity’s revenues and expenses over a set time, like a year.
You report donations, grants, program income, and other earnings as revenues.
Expenses include program costs, salaries, fundraising, and management.
This statement shows if your charity runs at a surplus or a deficit.
It’s important to detail program expenses separately to prove that money is spent on your mission.
Clear reporting helps donors see how funds are used.
Statement of Cash Flows
This report details the flow of cash into and out of your charity.
It breaks down cash from operating activities, investing, and financing.
You use it to track if your charity generates enough cash to pay bills and continue programs.
Unlike the income statement, it focuses on actual money moving, not just accounting entries.
Maintaining a cash flow statement supports budgeting and planning.
It also reassures donors and regulators that your charity handles cash responsibly.
Preparation of Monthly and Annual Reports
You should prepare monthly reports to monitor ongoing finances.
These include summaries of income, expenses, and cash position.
Monthly reports help spot issues early.
Annual reports combine all financial statements and provide a full view of your charity’s year.
They usually include notes explaining key accounting methods and unusual entries.
Accurate, timely reports ensure compliance and improve transparency.
You may need them to file tax forms and funding applications.
Consider using accounting software or hiring experts to keep reports reliable.
Implementing Internal Controls and Best Practices
Setting up clear steps helps protect your charity’s money and keeps your records accurate.
You need strong checks, regular reviews of your bank statements, and the right tools to manage your finances efficiently.
Internal Controls and Fraud Prevention
Internal controls are rules and processes you put in place to stop mistakes and fraud.
You should divide financial tasks among different people.
For example, one person approves expenses while another handles payments.
This limits the chance any one person can misuse funds.
Always require dual approvals for large purchases.
Keep detailed records of all transactions to make it easy to track money.
Training your staff regularly on these rules makes sure everyone knows their role.
Bank Reconciliation Procedures
Bank reconciliations are important to compare your records with the bank’s records.
This ensures your books are accurate.
Perform these reconciliations monthly or quarterly.
Check every deposit, withdrawal, and fee listed by the bank against your records.
If you find differences, investigate right away.
Common issues could be outstanding checks or bank errors.
Choosing and Using Accounting Software
The right accounting software can make your bookkeeping easier and more secure.
Look for software designed for nonprofits.
It should offer features like tracking donations, managing budgets, and generating financial reports.
Cloud-based options give you real-time access and automatic backups.
Use software that supports bank reconciliations and has built-in controls for handling expenses and approvals.
Make sure your staff knows how to use the software properly to avoid data mistakes.
Regular updates and technical support are also important.
Conclusion
If you need expert help with your charity’s bookkeeping and record-keeping requirements, reach out to the specialists at Northfield & Associates. They understand all the CRA rules about what records to keep, how long to store them, and the best ways to organize your financial documents. Their team can help you set up proper systems from the start so you can focus on your charity’s mission instead of worrying about compliance issues.
Good bookkeeping isn’t just about following rules it protects your charitable status and keeps your organization running smoothly. The experts at Northfield & Associates work with charities across Canada to make financial management simple and stress-free. Whether you’re just starting a new charity or need help fixing existing record-keeping problems, they have the experience to guide you through every step.
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Frequently Asked Questions
You need to keep detailed records, use appropriate bookkeeping tools, and follow the right accounting methods to manage your charity’s finances.
Understanding the legal standards and proper reporting will help you maintain compliance and transparency.
What are the record keeping requirements for charities?
You must keep minutes of all board and member meetings.
These should be stored as long as your charity exists and for two years after its status ends.
Donation receipts need to be kept for at least two years after the end of the year they were issued.
For gifts lasting ten years, keep receipts for two years after your charity loses its status.
Financial statements, ledgers, tax returns, and source documents must be kept for six years.
If your charitable status is revoked, keep these for two years after the revocation date.
What is the bookkeeping software for charities?
You should use software designed for nonprofit needs.
Many options track donations, grants, and expenses clearly.
Choose software that helps maintain compliance and generates reports for audits.
Cloud-based options offer easy access and data backup.
What is the best accounting method for nonprofit organizations?
Most charities use accrual accounting.
This method records income and expenses when they occur, not when money changes hands.
Accrual accounting provides a clearer picture of your charity’s financial health.
Some small nonprofits may use cash basis accounting if simpler tracking fits their work.
What is the accounting standard for charity?
Charities follow Generally Accepted Accounting Principles (GAAP) or similar nonprofit accounting standards in their country.
These standards ensure your financial records are accurate and comparable.
They require clear tracking of restricted and unrestricted funds.
What is the journal entry for charity?
When your charity receives a donation, debit the cash or bank account and credit donation income.
If a donation has restrictions, credit a separate restricted fund account.
When you spend from this fund, reverse these entries to track use properly.
What are the reporting requirements for charities?
You must prepare annual financial statements showing income, expenses, assets, and liabilities.
Submit tax returns and reports to government bodies.
Keep these documents accessible in case of audits.
Disclaimer: The information contained in this article is provided for general information purposes only and does not constitute legal or other professional advice. Readers should seek tailored legal advice in relation to their personal circumstances.
At Northfield & Associates our expert teams guidance on compliance requirements. Our team understands Canadian law and can help ensure your organization follows proper procedures.
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What We Do!
We’re often asked by prospective clients what our Bookkeeping service. People want to know what specific tasks we do, and what their responsibility is. This brief explainer page will answer that question. This is by no means an exhaustive list, but covers the most frequently asked questions.
Getting Started
- Review your existing books for needed corrections or back-work
- Chart of accounts setup or amendment
- Assistance with setting up bank feeds
- Limited assistance* with setting up payroll (QBO or Gusto only)
- Your books brought current and reconciled if needed
Ongoing Monthly Bookkeeping
- After-the-fact transaction recording
- Post to general ledger
- Post to other ledgers (as needed)
- Bank account reconciliation
- Monthly financial statements
- Other bookkeeping services, as required
- Best-practice bookkeeping advice and counsel
Year End
- Assistance with 1099-NEC preparation*
- Assistance with 1099-MISC preparation*
- Year-end financial statements and period-end closing
What We Don’t Do
Pay bills
We do not offer bill-pay services at this time, nor do we manage Accounts Payable (AP) or Accounts Receivable (AR).
Payroll tax responsibility
Our bookkeepers can assist you in setting up your initial payroll service in QBO or Gusto. We are not responsible for entering payroll hours/salary, accruing payroll taxes, nor the transmittal of payroll taxes to the IRS or the state. Your full-service payroll provider (QBO, Gusto, or whatever other service a client uses) will be the responsible party for payroll and payroll tax compliance.
*Payroll deductions and benefits
We provide assistance with setting up a payroll account in either Quickbooks Online or Gusto, including entry of employee data. We do not assist in state registrations, benefits, or advise on deductions. Those service areas are provided directly by either QBO or Gusto.
Preparation of W2s
Similar to the last item, your full-service payroll provider (QBO/Gusto) is responsible for preparation of Form W2 for employees.
Sales tax reporting
For those nonprofits that sell taxable goods and/or services, your bookkeeper will assist in accounting for sales taxes collected and transmitted, but we do not prepare state sales tax reports.
Donation recording
We do not provide individual donation data entry into your neither your donor CRM nor Quickbooks Online, nor do we prepare year-end donor acknowledgements.
Administrative tasks
We cannot provide administrative services unrelated to our bookkeeping function.
Attend board meetings
Due to the constraints of time and distance, we are unable to be present, physically nor virtually, at a meeting of a client’s board of directors.*May incur additional fee per 1099-NEC or 1099-MISC.
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