Do you feel overwhelmed by IRS Form 990? We want to provide helpful information for newly formed nonprofit organizations that are required to file IRS Form 990 Informational Returns. There will be several parts to this blog entry where we discuss certain aspects of Form 990 and steps that nonprofits can take to cut costs in its preparation. In this first segment, we will discuss the need to maintain proper bookkeeping practices. Yes, maintaining accurate financial data that is properly compiled is essential. Proper bookkeeping practices will result in cost or time savings in the long-run and should be at the top of every organization’s list of priorities when it comes to the financial operation of the organization. If the organization uses an outside preparer, ask the preparer if they also provide bookkeeping services and whether the organization can receive a reduced fee for its Form 990 preparation if the preparer performs year long bookkeeping.
If the organization properly maintains its financial data within an accounting software program, then the organization will also have the ability to produce financial statements. Of course proper setup of the accounting program along with accurate transaction reporting is necessary to achieve accurate financial statements. For instance, the nonprofit organization’s chart of accounts must be set up properly to generate reports that conform to Generally Accepted Accounting Principles. Hence, seeking accounting or bookkeeping advice in advance of preparation of Form 990 is warranted. Once the accounting software is set up properly and transactions are entered accordingly, then the organization can produce financial records such as a Statement of Activities and a Statement of Financial Position.
The Statement of Activities has several parts that identify the income and expenses of the organization for a specified time period such as an annual period. An organization’s Statement of Activities has strong importance not just for assisting a preparer with Form 990 preparation, but also the statement is extremely useful for budgeting, forecasting and other operational analysis purposes. Again, the organization must enter its transaction details accurately in order to receive ascertainable results.
Other transaction details will be reported on the Statement of Financial Position also known as a Balance Sheet. This information includes details about the organizations fixed asset mix, asset depreciation, liquidity, and stability. If balance sheet information is collected and reviewed overtime, the various data points can will also say something about the organization’s growth and growth potential. Two other financial statements – Statement of Cash Flow and Statement of Net Assets are also essential in providing a complete picture of the health of the nonprofit organization.
One should not take shortcuts when it comes to the financial health and viability of the nonprofit organization. Maintaining accurate financial data throughout the year in an accounting system with proper reporting of transaction history is the first step in potentially cutting the cost of Form 990 preparation. It also in the long run will pay off by yielding financial data necessary to improve efficiencies of the organization.
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