Nonprofit Accounting Basics
Not-for-profits must record expenses on a functional basis. Salaries are generally the organization’s largest expense. Allocating this expense to the various functions on an equitable and consistent basis is the key to properly reflecting the activity of the not-for-profit.
Time sheets are the most accurate method of allocating salary expense. Time sheets should be submitted by all employees for each pay period. The hours should be converted into percentages. The salary for the period is then allocated to the various functions based upon the resulting percentages.
Time sheets can also be used to monitor vacation, holiday, and sick leave.
All time sheets should be approved by a supervisor. If any changes are made, approval should also be noted on the actual time record.
The calculated amounts are then posted to the general ledger.
Fringe benefits and payroll taxes can be allocated based upon the time allocations. Fringe benefits include expenses incurred by the organization for such benefits as health insurance, the employer share of pension costs, and life insurance premiums.
The organization’s overhead expenses can also be allocated using these percentages.
The allocations should be reviewed periodically to verify the accuracy of the entries.
Sample time sheets are included and can be used for allocating salaries and related expenses.