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Nonprofit Accounting #361226

Course Overview

Credit

Amount

CPA

Course Author: Steven M. Bragg, CPA Field of Study (CPA): Accounting

Course Description

Course publication/revision date: This course was updated on 3/9/2026.

This practical guide shows how to create and operate a nonprofit accounting system and produce financial statements, all while operating in accordance with nonprofit accounting standards. The course walks the accountant through basic nonprofit accounting concepts and then discusses more advanced topics, including budgeting, controls, ratio analysis, revenue recognition, joint costs, split-interest agreements, tax reporting, and mergers and acquisitions. In short, the course offers a wealth of information for understanding nonprofit transactions and financial statements.

Table of Contents

Chapter 1 - Overview of the Nonprofit Entity1

Definition of a Nonprofit Entity	1
Nonprofit Organizational Structure	5

Chapter 2 - Basic Nonprofit Accounting Concepts8

Double Entry Bookkeeping	8
The Journal Entry	9
The Accounting Equation	9
The Chart of Accounts	11
The Accrual Basis of Accounting	14
The Cash Basis of Accounting	14
The Modified Cash Basis of Accounting	14
Converting Cash Basis to the Accrual Basis	15
Generally Accepted Accounting Principles (GAAP)	16
Net Assets	16
Net Assets without Donor Restrictions	16
Net Assets with Donor Restrictions	17
Net Assets Summary	17
The Release from Restriction Concept	17
Inter-Fund Receivables and Payables	18
Board-Designated Funds	18
Program Identification	19
The Management and Administration Classification	19
The Fundraising Classification	20
Bookkeeping Concerns	20
Case Study	21

Chapter 3 - Nonprofit Financial Statements27

The Statement of Financial Position	27
The Statement of Activities	31
The Statement of Cash Flows	34
The Direct Method	34
The Indirect Method	36
How to Prepare the Statement of Cash Flows	37
Reporting of Expenses by Nature and Function	38
Financial Statement Disclosures	41

Chapter 4 - Revenue Accounting45

Types of Revenue	45
Promises to Give	47
Pass-Through Contributions	48
Exchange Value	50
Transfers of Assets	50
Discounts from Revenue	50
Sales Taxes	51
The Allowance for Uncollectible Pledges	51
Restricted Fund Releases	51
Revenue Journal Entries	52
Special Reporting Considerations	53
Revenue Recordkeeping	54
Revenue Disclosures	59

Chapter 5 - Government Grants61

Overview of Government Grants	61
Grant Accounting	61
Income from Government Grants	64
Credits on Expenditures	64
Grant Reporting	64

Chapter 6 - Investment Accounting67

Contributed Investments	67
Purchased Investments	67
Subsequent Measurement of Investments	67
Gains and Losses on Investment	68
The Equity Method of Accounting	68
Investment Disclosures	71

Chapter 7 - Inventory Accounting74

The Periodic Inventory System	74
The Perpetual Inventory System	75
Inventory Costing	77
The First in, First Out Method	77
The Last in, First Out Method	79
The Specific Identification Method	80
The Lower of Cost or Market Rule	80
Inventory Disclosures	82

Chapter 8 - Fixed Asset Accounting85

Initial Recognition of Fixed Assets	85
The Capitalization Limit	86
Restrictions on Contributed Assets	87
Valuation of Contributed Assets	87
Valuation of Contributed Services	88
Valuation of Art and Similar Items	88
Depreciation of Fixed Assets	89
Depreciation Accounting Entries	90
Accumulated Depreciation	91
Asset Impairment	92
Recordation of Fixed Assets	92
Fixed Asset Disclosures	93

Chapter 9 - Lease Accounting96

The Nature of a Lease	96
Lease Components (Lessee)	98
Initial Direct Costs	99
Lease Consideration	99
The Lease Term	100
Initial Measurement of Lease Payments	100
Subsequent Measurement of Lease Payments	101
Types of Leases	101
Asset and Liability Recognition (Lessee)	102
Initial Measurement	102
Short-Term Leases	102
Finance Leases	103
Operating Leases	104
Right-of-Use Asset Impairment	105
Leasehold Improvement Amortization	105
Subleases	105
Maintenance Deposits	105
Derecognition	105
Elections	106
Discount Rate	106
Separation of Non-Lease Components	106
Sale and Leaseback Transactions	107
Lease Disclosures	108
Lessee Disclosures	108
Sale and Leaseback Transactions	109

Chapter 10 - Pension Plan Accounting111

Overview of Retirement Benefits	111
Defined Benefit Plans	111
Expense Attribution for Delayed Vesting	114
Discount Rates	115
Settlements and Curtailments	115
Termination Benefits	116
Combined Pension Plans	117
Defined Contribution Plans	117
Presentation of Retirement Benefit Information	117
Retirement Benefit Disclosures	117
Defined Benefit Plan Disclosures	117
Defined Contribution Plan Disclosures	120

Chapter 11 - Joint Costs and Allocations122

Costs of Activities that Include Fundraising	122
Allocations	126
Disclosures	129

Chapter 12 - Accounting Changes and Error Corrections131

Changes in Accounting Principle	131
Changes in Accounting Estimate	132
Changes in Reporting Entity	132
Correction of an Error in Previously Issued Financial Statements	133
Corrections Related to Prior Interim Periods	133

Chapter 13 - Fair Value135

The Fair Value Concept	135
Fair Value Differences from Actual Prices Paid	136
Fair Value Measurement Approaches	137
Fair Value Option	139

Chapter 14 - Other Accounting Topics141

Petty Cash	141
Interest in a Perpetual Trust	143
Receivables	143
Contingent Liabilities	143
Line of Credit	144
Disclosures	145

Chapter 15 - Split-Interest Agreements148

Split-Interest Agreements	148
Types of Split-Interest Agreements	149
Accounting for Split-Interest Agreements	149
Initial Measurement	150
Ongoing Measurement	151
Termination	151
Classification of Net Assets	152
Disclosures	152

Chapter 16 - Affiliated Organizations155

Affiliated Organizations	155
Special Purpose Entities	157
Noncontrolling Interests	157
Related Parties	158
Disclosures	158
Revenue Sharing	158
Consolidated Financial Statements	158
Noncontrolling Interests	159
Related Party Transactions	159

Chapter 17 - Mergers & Acquisitions162

The Nonprofit Merger	162
The Nonprofit Acquisition	163
Identifiable Assets and Liabilities, and Noncontrolling Interests	165
Goodwill Calculation	166
Contribution Received	167
Presentation Issues	167
Goodwill Amortization Option	168
Goodwill Testing	168
Disclosures	171
Merger Disclosures	171
Acquisition Disclosures	173

Chapter 18 - Nonprofit Tax Reporting176

Overview of the Form 990	176
The Form 990	179
The Form 990-EZ	181
The Form 990-N	184
The Form 990-T	184
Form 1099-MISC	185
Form W-2	187
Form W-3	188
Form W-8	189
Payroll Taxes	190
Social Security Tax	190
Medicare Tax	191
Types of Tax Deposit Schedules	192
The Form 941	194

Chapter 19 - Closing the Books200

Journal Entries	200
The Accruals Concept	200
Adjusting Entries	201
Reversing Entries	201
Common Adjusting Entries	202
Closing Entries	205
Prior Steps: Update Reserves	206
Core Steps: Issue Customer and Donor Invoices	207
Core Steps: Reconcile the Bank Statement	207
Core Steps: Calculate Depreciation	209
Core Steps: Accounts Payable	209
Core Steps: Review Journal Entries	210
Core Steps: Reconcile Accounts	211
Core Steps: Close Subsidiary Ledgers	212
Core Steps: Create Financial Statements	213
Core Steps: Review Financial Statements	213
Core Steps: Accrue Tax Liabilities	213
Core Steps: Close the Month	214
Core Steps: Add Disclosures	214
Core Steps: Issue Financial Statements	214
Delayed Closing Steps: Issue Invoices	214
Delayed Closing Steps: Closing Metrics	215
Delayed Closing Steps: Document Future Closing Changes	215
Delayed Closing Steps: Update Closing Procedures	216

Chapter 20 - Nonprofit Budgeting218

The Revenue Budget	218
The Management and Administration Budget	220
The Fundraising Budget	221
Program and Grant Budgets	221
The Compensation Budget	222
The Compensation Budget	222
Treatment of Hourly Pay and Overtime	224
The Benefits Budget	225
Budget Recasting	227
Budget Linkages	227
Cash Forecasting	227
The Short-Term Cash Forecast	228
The Medium-Term Cash Forecast	231

Chapter 21 - Accounting Controls234

The Proper Balance of Control Systems	234
Control Principles	236
Constructing a System of Controls	237
Cash Controls	238
Donated Merchandise Controls	240
Fixed Asset Controls	240
Hiring Controls	243
Payables Controls	243
Payroll Controls	247

Chapter 22 - Nonprofit Policies253

General Accounting Policies	253
Cash	253
Fixed Assets	253
Payables	255
Payroll	256
Nonprofit-Specific Policies	256
Donor Receipts	256
Donated Assets	257
Investments	257
Operations	258
Joint Ventures	259
Lobbying and Political Campaigns	260
Tax Filings	260

Chapter 23 - Analysis of a Nonprofit's Financial Health262

The Auditor's Report	262
Horizontal Analysis	263
Vertical Analysis	264
Expense Proportions Analysis	266
Fundraising Effectiveness Ratio	267
Revenue Concentration Analysis	268
Traffic Light Revenue Analysis	269
Traditional Ratio Analysis	269
Current Ratio	269
Quick Ratio	270
Days Sales in Accounts Receivable	271
Days Sales in Inventory	272
Days Payables Outstanding	272
Free Cash Flow	273
The Profitability Conundrum	274

Answers to Chapter Questions276

Glossary296

Index301

Course Details

Author: Steven M. Bragg, CPA

Steven Bragg, CPA, has been the chief financial officer or controller of four companies, as well as a consulting manager at Ernst & Young. He received a master’s degree in finance from Bentley College, an MBA from Babson College, and a Bachelor’s degree in Economics from the University of Maine. He has been a two-time president of the Colorado Mountain Club, and is an avid alpine skier, mountain biker, and certified master diver. Mr. Bragg resides in Centennial, Colorado. He has written more than 300 books and courses, including New Controller Guidebook, GAAP Guidebook, and Payroll Management.

Publication/Revision Date: 3/9/2026

Course Exam Questions (online): Eighty (multiple-choice)

Program Delivery Method: NASBA QAS Self-Study

Available Formats of Course Text: PDF or PDF plus printed copy sent in the mail

Course Level, Prerequisites, and Advance Preparation Requirements

License	Course Level	Prerequisites	Advance Preparation Requirements
CPA	Overview	None	None

* This program is appropriate for professionals at all organizational levels.

Sponsor ID Numbers

National Registry of CPE Sponsors ID: 107615

State CPA Board Sponsor ID Numbers (where applicable)

Florida Division of Certified Public Accounting: 0004761

Hawaii Board of Public Accountancy: 14003

New York State Board for Public Accountancy: 002146

Ohio Accountancy Board: CPE .51 PSR

Pennsylvania State Board of Accountancy: PX178025

Texas State Board of Public Accountancy: 009349

Learning Objectives

As a result of studying the course material, you should be able to meet the objectives listed below:

Cite the criteria used to define a nonprofit organization.
Specify the essential building blocks of an accounting system.
Identify the types of nonprofit financial statements and the comparable for-profit financial statements.
Specify the instances in which revenue and gains can be recognized by a nonprofit.
Cite the methods used to assign costs to a grant-funded program.
State the applicable rules related to the recognition of investment assets.
Identify the costing characteristics of the various cost layering methodologies.
Identify the options available for recognizing a collection.
Recall how the 12-month lease exception works.
Specify the different types of lease payments.
Recognize the components of net periodic pension cost, and the accounting for a defined contribution plan.
Identify the types of joint costs, and the tests used to determine whether fundraising costs can be allocated.
Define the situations in which accounting principles can be changed, and when retrospective application is allowed.
State the concept of the principal market and the basis upon which fair value is determined.
Cite the accounting for a contribution receivable, as well as the steps involved in a petty cash reconciliation.
Identify the accounting associated with split-interest agreements, as well as the nature of lead and remainder interests.
Specify the circumstances under which the reporting consolidation of two or more entities is required or allowed.
Recognize the situations in which the carryover and acquisition methods are used, and whether goodwill or an inherent contribution can be recorded for an acquisition transaction.
State the IRS forms used for various nonprofit tax reporting activities, and the circumstances under which they must be filed.
Cite the steps involved in closing the books at the end of a reporting period.
Identify the line items used in nonprofit budgets and cash forecasts.
Specify the considerations to be reviewed when creating controls, as well as the controls employed in the cash, fixed asset, payables, and other accounting areas.
Recognize the considerations involved in setting policies for collections, asset dispositions, and employee labor.
Cite the types of analysis that can be employed to yield insights into the financial condition and fundraising effectiveness of a nonprofit.