Not-for-profit does not mean losse-ended groups

Cherie Trewavas – Not-for-profit does not-Cherie Trewavas Web

When it comes to keeping track of income, the government has strict rules surrounding financial accountability for registered charities and not-for-profit organisations.

It is therefore worth taking some time to understand how these rules might affect your non-profit organisations. There is plenty of non-profit specific information on the Inland Revenue Department (IRD) website along with very useful checklists and guides that you should understand. However, these can be a little overwhelming.

So, let us get you started in the right direction with a few pointers on the kinds of things you should be doing to ensure that your organisation is getting the most from its hard-earned income.

Keeping track

First, the basics. Accounting is more than just counting the money that comes in and goes out, although that certainly forms a large part of it.

Think of it instead as a way of identifying, measuring and communicating financial information to all the stakeholders in your organisation so that they can then make the best decisions toward achieving the aspirations of your entire non-profit group.

The first thing that you should become familiar with is a profit and loss statement.

This is one of three key financial statements prepared by non-profit groups to keep track of money (the other two being balance sheets and cash flow).

Its purpose is to provide an overview of income and expenses.

P&L Objective

Sometimes called a statement of financial performance or an income statement, a profit and loss document provides the basis for measuring the financial performance of the organisation over the course of an accounting period.

Essentially, all this document shows is money received and money spent.

At the bottom, you will have either a surplus (you made more money than you spent) or a deficit (you spent more than was earned). In that respect, it is quite simple.

Revenue and other income

Within these two broader categories of income and expense are some slightly more abstract terms that complicate things a little but nonetheless have a bearing on the final surplus or deficit figure.

For instance, money received can typically be broken down into ‘revenue’ and ‘other income.’ Revenue would be money from fundraising, grants and anything else directly related to the main activity of the group. Whereas ‘other income’ is money that did not come from these main activities; a typical example of this would be interest made on fundraising cash sitting in a bank account.

Expenses and other outgoings

Once you have all your income listed, it is time to deduct the outgoings.

These are costs to your non-profit organisation and range from regular things such as accountancy and bank fees through to rent and power bills. Other, one-off expenses include things like repair bills and travel costs. For tax purposes, the depreciating value of equipment owned by the group (desks, computers etc) can also be included in the expense portion of the profit and loss statement.

To find out more about depreciation, the IRD website (www.ird.govt.nz) is a good place to start.

Income tax paid should also be listed as an expense.

What does it all mean?

Keeping track of all the money coming in and going out is important. Not only does it provide an accurate overview of the financial situation, but it allows you a chance to have a good look in one simple document at all the various income sources your organisation has. Likewise, it is a good chance to examine the costs involved.

Of course, while on the whole a profit and loss statement is simple in theory; there will always be specific things about which you would be uncertain. That is when you should talk to an expert such as your accountant, IRD or your bank.

If you have any questions about how BNZ can support your non-profit organisation, call us on 0800 273 916.

The above article is intended as a general discussion only, and is based on selective information which may not be suitable for your purposes. BNZ strongly recommends the recipients take independent legal, investment and financial advice prior to making any financial or investment decisions.  

Cherie Trewavas is BNZ Partner based in Wellington. The above is her insight into building the financial capabilities of Not-for-Profit Organisations.

BNZ is the Title Sponsor of the Indian Newslink Indian Business Awards 2106 and Indian Newslink Sir Anand Satyanand Lecture 2016.

Add a Comment