Nonprofit Bookkeeping Guide

A complete how-to for running 501(c)(3) accounting in BizBooks Pro 2.0 — from initial setup through producing the FASB ASC 958 financial statements your auditor expects to see.

When to Use Nonprofit Edition

The Nonprofit Edition turns on as soon as a company's reporting standard is set to FASB ASC 958. From that moment, BizBooks Pro behaves the way auditors of charities expect: equity reports as Net Assets in three classifications, the Income Statement becomes the Statement of Activities, donor-restricted gifts can be tagged to tracked funds, and a Form 990-ready functional expense matrix is available on demand.

Other companies on your install (e.g. a personal LLC or a side business you also keep books for) keep their standard GAAP or IFRS behavior. The Nonprofit Edition features only appear inside companies marked FASB ASC 958.

Creating Your Nonprofit File

1. From the sidebar, open Settings → Companies and click Add New Company (or run the Setup Wizard if this is your first BizBooks Pro company)
2. Enter the legal name and EIN of the 501(c)(3) entity
3. For the Reporting Standard selection, choose Nonprofit (FASB ASC 958)
4. Keep Create default chart of accounts checked so BizBooks Pro seeds the 35-account nonprofit-specific chart
5. Click Save to create the company file

Understanding Net Asset Classes

FASB ASC 958 mandates that nonprofit equity be presented in three categories rather than a single Retained Earnings line. BizBooks Pro pre-creates these as three distinct equity accounts when you set up the nonprofit chart of accounts:

The Statement of Financial Position breaks these out as separate subtotals, with current-year activity automatically rolled into the correct class.

The Three Restriction Types

Each donor-restricted gift falls into one of three restriction types — pick the one that matches the donor's stipulation:

• Purpose-restricted — used when a donor specifies what their gift is for. Example: "for the new community center construction," "for the youth scholarship program," "for staff training." Released when the restricted activity has been carried out (in full or in part).
• Time-restricted — used when a donor specifies when their gift may be spent. Example: "to be used in fiscal year 2027," "release in equal quarterly draws over three years." Released as the relevant time passes.
• Permanently restricted — used for endowment principal. Example: "establish the Smith Family Endowment; only the earnings may be used annually." The principal stays in this class forever; investment earnings can flow through to other classes per donor agreement.

Recording a New Restriction

1. From the sidebar, open Donor-Restricted Funds
2. Click + New Donor Restriction
3. Complete the form:
   • Name — a short identifier you'll recognize later (e.g. "OJJDP Grant 2026," "Building Campaign — Walk-In Refrigerator")
   • Restriction Type — purpose, time, or permanent
   • Donor Name — optional but recommended for grant tracking
   • Original Amount — optional; if entered, BizBooks Pro shows you remaining balance after each release
   • Release Condition — a brief note describing the trigger that would justify releasing the funds (e.g. "Released as quarterly OJJDP milestone deliverables are reported")
   • Description — longer narrative for the audit work papers
4. Save

The new restriction joins your list with status Active. Metadata fields stay editable; running totals (released amount, status) are system-controlled.

Posting Restricted Income

So the Statement of Activities can split revenue into the right net asset column, every restricted contribution must be tagged to its corresponding donor restriction at the time of posting.

Through the Invoice modal:

Creating an invoice for a restricted grant payment? After entering the customer and line items, the Donor Restriction dropdown becomes available below the items. Select the matching restriction. Leave blank when invoicing for unrestricted contributions, program service fees, or other non-restricted income.

Through the General Journal Entry modal:

For directly-recorded restricted contributions (e.g. an ACH deposit from a foundation), open a manual journal entry. The Donor Restriction dropdown appears in the header, between the entity selector and the line items.

Releasing a Restriction

When the donor's condition has been fulfilled — the project finished, the time period elapsed, or the milestone hit — release the restricted funds. The release performs the standard FASB 958 reclassification: moving the released amount out of temporarily restricted net assets and into unrestricted net assets.

1. Open Donor-Restricted Funds from the sidebar
2. Find the restriction in the list and click Release
3. Enter:
   • Amount to Release — partial releases are fine; the amount cannot exceed the restriction's remaining balance
   • Release Date — defaults to today; change if backdating
   • Notes — describe what condition was satisfied (recommended for audit trail)
4. Click Release

BizBooks Pro auto-posts the standard reclassification entry:

• Dr Net Assets With Donor Restrictions — Temporary (account 3100)
• Cr Net Assets Released from Restrictions (account 4900)

The journal entry carries the restriction tag, so on the Statement of Activities it appears as a reclassification line — positive in the Without Donor Restrictions column and negative in the With Donor Restrictions Temporary column. The two amounts cancel out across columns; total revenue and total change in net assets are unaffected.

Once the cumulative released amount equals the original gift amount (within a penny), the restriction status updates to Fully Released. Further releases are blocked, but the restriction record stays in your history for audit reference.

Why Form 990 Requires Functional Expense Allocation

Under FASB ASC 958, nonprofits must show their expenses two ways: by natural class (the everyday cost categories like Salaries, Rent, Office Supplies) and by functional class (Program Services, Management & General, Fundraising). The Statement of Functional Expenses presents both views together as a matrix.

Form 990 filers must complete this matrix annually on Schedule O. Capturing the functional classification correctly when the expense account is created — rather than reconstructing it at audit time — saves substantial work.

Classifying Each Account

Functional classification lives on the account record itself, not on individual transactions. This works because most expense categories map cleanly to a single function (e.g. "Program Supplies" is always Program; "Donor Database & CRM" is always Fundraising), so tagging once at the account level is far easier than tagging every transaction.

1. Navigate to Chart of Accounts
2. Open the expense account you want to classify (or create a new one)
3. Confirm the Account Type is Expense, Cost of Goods Sold, or Other Expense
4. The Functional Classification dropdown appears — pick Program, Management & General, Fundraising, or None
5. Save

Adding Donors

Open Donors & Statements in the sidebar. The entry appears only for companies whose reporting standard is FASB ASC 958, alongside Donor-Restricted Funds.

A donor record holds the name, a salutation (how the letter opens — “Mr. and Mrs. Alvarez” rather than “Alvarez, Maria”), postal address, email, donor type, and how they should receive their statement. Donor types cover individuals, households, businesses, foundations, and anonymous givers.

Recording a Gift

Click + Record Gift. Choose the donor, the date, the amount, the account the money was deposited into, and the contribution income account to credit. The memo you enter is what the donor sees in the description column of their statement, so “Building fund pledge” reads better than a blank.

Behind the scenes this is an ordinary double-entry transaction, tagged to the donor. It appears in your registers and reports like any other deposit — the donor attribution simply rides alongside it.

When a Donor Gets Something Back

If a gift came with a benefit — a banquet seat, an auction item, a book — only the amount above the fair value of that benefit is deductible, and the IRS requires you to say so in writing. Tick The donor received something in return, describe what they got, and enter your good-faith estimate of its value.

The statement then shows the gift, the description of what was received, the estimated value, and the reduced amount the donor may claim. At the foot of the statement the year’s total is shown with the value of all benefits subtracted, so the deductible figure is stated once, plainly.

Non-Cash Gifts

Donated property is reported separately. Record the gift as non-cash and describe it — “Upright piano, Yamaha U1”, “2019 Honda Odyssey”, “120 cases of tinned food”.

The statement lists the description and the date, and deliberately states no value. A charity may describe donated property but must not assign it a value on the acknowledgment; establishing the value is the donor’s responsibility. BizBooks Pro prints that explanation on the statement so the donor is not left wondering why the amount column is blank.

If your organization books the property at a value internally, enter it as the book value. That posts to the general ledger for your own reporting without ever appearing on the donor’s letter.

Running Year-End Statements

Switch to the Year-End Statements tab and pick the tax year. Statements normally go out in January for the year just ended, so the year defaults accordingly.

Before anything is generated you see the whole run: how many donors qualify, the total cash given, how many are missing an email address, and how many have already been sent a statement for that year. Flags mark donors with non-cash gifts and donors with quid pro quo gifts, so anything needing a second look is visible up front. Preview opens any individual statement as a PDF.

When the run looks right, click Generate & Send. Statements are emailed with the PDF attached, using the email settings configured for the company.

Delivery & Printing

Each donor carries a delivery preference: Email, Print / mail, or Do not send.

Donors set to print, and donors set to email who have no email address on file, are not skipped. They are collected into a printing list at the end of the run so you can produce their statements on paper. This is deliberate — the failure mode worth avoiding is a supporter who never receives a statement and nobody notices until they ring in March.

Every statement issued is recorded. Re-opening the screen and running it again will not send a second copy to anyone who already has one, unless you explicitly ask for a re-send. Failures are recorded too, with the reason, so a bounced address can be fixed and just that donor re-run.

Statement of Activities

The nonprofit equivalent of the Income Statement. Access via Nonprofit Reports → Statement of Activities.

Layout:

• Columns: Without Donor Restrictions, With Donor Restrictions (Temporary), With Donor Restrictions (Permanent), Total
• Revenue and Support section — each revenue account split into whichever column matches its donor restriction tag
• Net Assets Released from Restrictions — the reclassification line; appears as a positive in unrestricted and negative in temporary, summing to zero across columns
• Expenses section — grouped under Program Services, Management & General, Fundraising, and Unclassified subtotals; always charged to the unrestricted column
• Change in Net Assets — bottom-line per-column totals

If you see expense activity in the Unclassified subgroup, that signals expense accounts missing a functional classification. Fix them before the audit by editing each account and assigning the correct class.

Statement of Functional Expenses

The expense matrix: natural class accounts down the side, functional classes across the top. Access via Nonprofit Reports → Statement of Functional Expenses.

Each expense account contributes one row. The expense amount lands in exactly one functional column (Program / M&G / Fundraising / Unclassified) based on the account's classification, with the row Total summing across.

Column totals at the bottom should reconcile to the expense totals shown on the Statement of Activities. If they diverge, the most common cause is Year-End Close transactions leaking into the period or stray expense activity outside the selected date range.

Statement of Financial Position

BizBooks Pro's nonprofit Balance Sheet. Access via Nonprofit Reports → Statement of Financial Position.

The Assets and Liabilities sections present standard balance sheet content. The Net Assets section automatically segments into:

• Without Donor Restrictions
• With Donor Restrictions — Temporary
• With Donor Restrictions — Permanent

Within each segment, BizBooks Pro lists the underlying equity accounts (typically 3000, 3100, and 3200 from the seeded nonprofit COA) and a current-year change line that rolls year-to-date activity for that net asset class. This mirrors the way standard Balance Sheets show YTD Net Income flowing into Retained Earnings — fully accurate mid-year, before the formal Year-End Close has been run.

The report footer surfaces a balance check: Total Assets must equal Total Liabilities and Net Assets. If they don't, a warning displays the dollar discrepancy so you can investigate before the audit.

Schedule of Net Assets by Restriction

An audit-disclosure schedule supporting the Net Assets balances. Access via Nonprofit Reports → Schedule of Net Assets by Restriction.

Each active restriction occupies one row showing original amount, released amount, remaining balance, donor identity, and release condition narrative. Rows group by restriction type (Purpose, Time, Permanent) with per-type subtotals, plus a grand total summarizing overall restricted-fund position. Your audit firm will routinely request this schedule to tie out to the Statement of Financial Position.

Funds Available for Release

A review queue of active purpose- and time-restricted funds with releasable balances. Access via Nonprofit Reports → Funds Available for Release.

This report is intentionally a worklist, not an auto-release. Each row shows the restriction's release condition; your finance team reviews each entry, decides whether the condition has been met, and clicks Release if appropriate. No reclassification ever happens automatically — every release requires deliberate human approval. Permanently restricted funds are excluded since their principal is never releasable.

Grant Budget vs. Actual

The report to hand a program officer who asks how much of their grant is left. Access via Nonprofit Reports → Grant Budget vs. Actual.

A grant in BizBooks Pro is a donor-restricted fund. Set the grant up once under Donor-Restricted Funds, filling in the funder as the donor and the awarded figure as the original amount, then tag each transaction you spend against it. Nothing else is required — this report is built from those two things.

Each grant occupies one row: Award (the amount recorded on the fund), Spent (period) for the date range at the top of the screen, Spent (life) from inception through the end of that range, Remaining, and % Used with a progress bar. Click any grant name to expand the expense accounts behind its spend, with the functional classification of each. Grants spent past their award are shown in red and counted in the banner above the table.

The report reads the general ledger directly, so it reflects everything posted up to the moment you run it — there is no period to close and nothing to rebuild. Two options shape it: the From/To dates set the period columns and cap life-to-date, and Include closed grants brings in funds already marked fully released, which are hidden by default.

Grants with no award amount recorded still appear, showing their spend but no Remaining or % Used — there is nothing to measure against. The banner counts them so an empty award field is visible rather than silently treated as zero.