Accounting for private non-profit organizations and governments is called fund accounting. It differs from regular accounting in that instead of showing profitability, which matters in business, the emphasis is on accountability, or explaining how money received was spent. Thus, the focus is on the source of the funds and the uses of funds.

There is no single general ledger. Because non-profits can receive money from multiple sources – grants or foundations or individual donors, money that is given to them generally comes with strings. It may have been received as a result of some type of government grant. There may be time or purpose restrictions tied to how it may be spent. There could be limits placed on the expenditures. Fund accounting software can establish general ledgers for each income source. Then, organizations can report on how the money received from each benefactor was used. Each project can be evaluated individually by contributors as well as program personnel.

In addition to reporting to individual reporting requirements, there must be a composite reporting to satisfy boards of directors, providing a snapshot of managerial effectiveness. Regulations for non-profit financial reports are administered by The Financial Accounting Standards Board (FASB). The key FASB sections to read are statements number 116 and 117.

Since keeping the records and reporting for a non-profit is both different and complex, specialized software is critical to successful fund administration. Some of the major vendors have adapted their products to make them attractive to non-profits. Others are specifically targeted to an industry: churches, for example. There are web sites which claim to direct one to the best choice based on questions. Answering questions about an organization is a good way to find software that is suited financially and operational to the need.

The accountant for any non-profit should be involved in the choice a product that is suitable. Accurate records are needed for IRS Form 990, tax information for non-profits. While software products can provide this, management must be comfortable that the product is understandable and easy to use.

Be sure to look into any company whose product you are considering. It should have had some version of your product out for quite a while. If a company is adding a module to an existing product, how much support can be expected and how frequently is the software updated? Is the system you are eyeing expandable to accommodate future growth? Does the system support the appropriate requirements from the FASB? Is the cost of the system fitting for your association? That is, would the fees for training, maintenance and licensing over a period of 3 – 5 years be affordable?

There are ways of learning more while making a choice. Free trials of limited versions may be offered by some vendors. Inquire about remote demonstrations or sales presentations. While none of these methods are perfect, choosing the right software, as in choosing the right people, is essential to a fruitful experience.