As a board member of a nonprofit organization, you have a great deal of responsibility. Not only do you need to protect the organization and support your mission, but you also have to ensure its assets and financial activities are sound.

Nonprofit Accounting Basics for Board Members

Financial Responsibilities of Board Members

According to BoardSource, an organization that inspires and supports nonprofit governance, there are 10 basic responsibilities of nonprofit board members. Those pertaining to financial security are:

  • Ensure effective planning: Boards must actively participate in an overall planning process and assist in implementing and monitoring the plan’s goals.
  • Ensure adequate financial resources: One of the board’s foremost responsibilities is to secure adequate resources for the organization to fulfill its mission.
  • Protect assets and provide proper financial oversight: The board must assist in developing the annual budget and ensuring that proper financial controls are in place.

You can read the full list of board member responsibilities here.

Types of Financial Statements

There are three main types of nonprofit financial statements. They are:

  • Statement of Activities
  • Statement of Cash Flows
  • Statement of Financial Position

Learn more about the different types of financial statements here.

Common Nonprofit Accounting Terms

Below are some of the more common nonprofit accounting terms that will help you as you serve on the board:

  • Assets – An item of current or future economic benefit to an organization.
  • Audit – A financial statement of a certain date, usually covering 12 months, prepared by a CPA, that includes an opinion letter, statement of financial position, statement of activities, statement of cash flows, and notes.
  • Balance Sheet – Statement of showing an organization’s financial position at the close of business on a given day.
  • Board Designated Funds – Unrestricted net assets that have a defined use or purpose, as determined by an organization’s board of directors.
  • Liabilities – items owed by an organization or claims against its assets.
  • Permanent Restricted Funds – Funds with donor-imposed stipulations that the principal not be spent.
  • Statement of Cash Flows – Summary of the sources and uses of cash that reconciles cash at the beginning of the year with cash at the end of the year.
  • Unrestricted Funds – Funds that have no external restriction as to use or purpose.

Definitions for the terms came from NonprofitFinanceFund.org. You can look up more nonprofit accounting terms here.

Capital Business Solutions is an integrated financial solutions provider for private and public sector organizations. We offer a variety of fund accounting solutions, in addition to training and implementation services for Blackbaud, NetSuite and Abila products. Learn more by calling 919-821-1244, emailing bschilling@capitalbusiness.net, or filling out this contact form.