Grants and Contributions – rather than earned income, are the earnings received by your business for which you do not have to offer anything in return. Ultimately, it makes the majority of income for nonprofit organizations. Well, grant income may take up numerous forms including private and government grants. But before labeling the income as GRANT, you need to make sure that it is a “grant income”.
You must be thinking, how to draw a distinction?
Here grant record-keeping comes in handy… it helps you identify the nature of income. So, if your organization completely depends upon contributions, this charging method is something that should be on your radar. Honestly, it can assist you in tracking grant-related expenses and revenue so that you can fulfill your mission while maintaining exceptional relationships with stakeholders and donors.
But there is a misconception that the general ledger can do the same for you. Wrong! Grant accounting helps in reconciling accounts on daily basis. Moreover, it ensures that the revenue and expenditures are within the budget limits – whereas the typical features of the general ledger cannot handle it.
Don’t stop here – keep reading we have gathered a lot of valuable insights for you…
Grant accounting assists organizations in running their everyday operations smoothly. It helps organizations oversee grant activities and might perform different tasks including:
With such an accounting method, you can generate financial reports to efficiently manage costs, meet federal mandates, and report to the principal investigator. Again, the GL cannot easily facilitate such tasks.
To help you further, we have jotted down some basics of grant bookkeeping/accounting.
Just have a look at it…
Finance is the elixir that enables employers to reap the advantage of growing opportunities, employ local workers, and in turn support other companies and the federal, state, and local governments through the transmittal of income taxes. As a result, keeping an eye on the grant money and comparing it to key project milestones can help you a lot.
You've got the money now put it where you stated it would go and count as much as possible. Classify the funds to be managed as belonging to a specific project or as part of the overall grant fund/ledger.
To run a business successfully, it is pretty essential to maintain financial reports as they help on numerous levels. Grant accounting let you do this easily. First off, this allows you to track how the funds are being spent and how the project is making progress.
Management and financial reporting could indeed reveal operational effectiveness, bottlenecks, and cost issues, as well as ways to improve processes to make them more efficient and cost-effective. You won't know unless you document the grant funds.
This is essential for both the application phase at the start of the grant process and tax reporting. Being a non-profit organization, you must get the necessary work done while making your finances ready for audit. Furthermore, you must understand how you are using grants, and also the overall effectiveness and relevant finances of the organization. This is critical for retaining nonprofit status and building credibility among grantees.
A number of grant rewards have conditions attached to them. For example, grant funds may only be spent on specific items or in specific situations. They might also have documentation requirements. Make a note of it in your financial management meeting. If you don't want to risk losing the grant money or being ineligible for it again.
Above and beyond, grant accounting has some features that help organizations further in their daily tasks. So, if you want to upgrade your accounting system check if it offers financial reporting, automation, and project accounting features. Let’s take a closer look at these features:
One of the major benefits of such an accounting method helps in tracking important account info for specific initiatives across your organizations while determining where contributions are coming from and whether target goals are reachable or not.
Obviously, it is not practical to generate cash receipts manually every time. Hence, the grant software automatically records donations to suitable programs and funds with allocations into the general ledger.
If you want your business to thrive, it is necessary to record finances accurately. The grant bookkeeping/accounting helps in documenting and analyzing the grants while assessing the project’s progress and financial health. Besides, you can easily drill down to certain account information to analyze the profitability. Not just this, you can also create unique reports having real-time information.
To ensure accurate financial information, grant accounting tracks income and payments in the same system as your account information.
Besides the core accounting and bookkeeping functions it provides, flexibility is yet another essential component of grant bookkeeping/accounting. The reality is that your nonprofit organization operates differently than other businesses. Because of your unique processes, grants, and funding resources, you have to customize and configure how your accounting processes flow in order to maximize system usability. Or else, your employees will have to go the extra mile and do more manual work to conform to the system. Therefore, your grant bookkeeping/accounting software should be tailored to your business’s needs.
If we talk about the immediate benefits of such a bookkeeping method, it includes compliance, indirect cost recovery, and generating data for reporting. Hence, if you are in search of a grant accounting service – Aberny is at your convenience.