Accounting Programs for Nonprofits: What to Look For

Accounting programs for nonprofits differ significantly from standard business accounting software. Nonprofits have unique requirements—fund accounting, restricted gift tracking, FASB compliance—that generic tools simply don't address. This guide helps you understand what to look for and how to evaluate your options.

Why Nonprofits Need Specialized Accounting Programs

The Fund Accounting Difference

For-profit businesses track profit and loss. Nonprofits track stewardship—how resources are used according to donor intent and organizational purpose.

Fund accounting is the methodology that makes this possible:

• Net asset classification: Categorizing resources as unrestricted, temporarily restricted, or permanently restricted
• Fund tracking: Monitoring balances and activity for each fund or grant
• Functional expense allocation: Distributing costs across program, management, and fundraising categories

Standard accounting programs like QuickBooks or Xero use "classes" or "tags" to approximate this, but they weren't designed for true fund accounting. The workarounds break down when you need:

• Automatic restricted fund balance calculations
• Statement of Functional Expenses generation
• Grant budget vs. actual tracking
• Multi-fund transaction splitting

Compliance Requirements

Nonprofits face regulatory requirements that for-profit accounting software doesn't address:

• Form 990: Annual information return with specific data requirements
• FASB standards: Financial statement presentation rules for nonprofits
• Grant reporting: Funder-specific formats and schedules
• Audit preparation: Documentation and controls for annual audits

Essential Features in Nonprofit Accounting Programs

True Fund Accounting

This is non-negotiable. Your accounting program needs native support for multiple funds with separate tracking, automatic net asset classification, inter-fund transfer handling, and fund balance reporting at any point in time. If a vendor says "you can use classes for that," they're selling you a workaround, not a solution.

Grant Management

If your organization receives grants, you need budget setup by grant with line-item detail, expense tracking against grant budgets, drawdown and reimbursement management, and grant-specific financial reports. The best systems also track deadlines and deliverables — because missing a grant reporting deadline can cost you the next award.

Financial Reporting and Compliance

Your program should generate the four core nonprofit statements automatically: Statement of Financial Position, Statement of Activities (by net asset class), Statement of Functional Expenses, and Statement of Cash Flows. If you're manually building these in Excel from QuickBooks data, you're spending hours on work that purpose-built software handles in seconds. You'll also need custom reports for board presentations, funder requirements, and audit preparation.

Day-to-Day Operations

The operational features matter more than most people realize during the evaluation process. Accounts payable should support invoice entry with fund/grant allocation, approval workflows, and 1099 tracking. Accounts receivable needs pledge and grant receivable management with aging reports. Bank reconciliation should include automatic bank feed import and one-click transaction matching. And budgeting tools should support annual budget entry by fund, budget-vs-actual reporting, and variance analysis.

These aren't glamorous features, but they're the ones your bookkeeper uses every day. If they're clunky or missing, your team will build spreadsheet workarounds — and those workarounds always become permanent.

Comparing Accounting Program Options

Feature	Generic Software (QuickBooks, Xero)	Entry-Level Nonprofit (Aplos, Wave)	Full Nonprofit Accounting (Alignmint, Blackbaud)
Fund accounting	Workarounds only	Basic support	Full native support
Net asset tracking	Manual	Semi-automated	Automatic
Statement of Functional Expenses	Not available	Limited	Full automation
Grant management	Not available	Basic	Comprehensive
Form 990 support	Not available	Some data	Full preparation support
Donor integration	Separate system	Basic	Full CRM integration
Price range	$15-150/month	$40-100/month	$50-500/month

Red Flags When Evaluating Accounting Programs

"Fund Accounting" That Isn't

Some vendors claim fund accounting but really just offer tagging or class tracking. Ask specifically:

• Can I see restricted fund balances in real-time?
• Does the system automatically generate Statement of Functional Expenses?
• How are inter-fund transfers handled?

Outdated Technology

If the software requires desktop installation, runs only on Windows, or looks like it was designed in 2005, the underlying architecture is probably outdated too. This affects:

• Security and data protection
• Integration capabilities
• Mobile access
• Ongoing development and support

Hidden Costs

Watch for:

• Per-user fees that grow with your team
• Charges for basic features like bank feeds
• Implementation fees that exceed the software cost
• Annual price increases locked into contracts

Poor Integration

Your accounting program should connect with:

• Your donor management/CRM system
• Payment processors for online giving
• Payroll services
• Bank accounts for transaction import

If integration requires expensive middleware or manual exports, factor that into your evaluation.

Questions to Ask Before Choosing

1. Is this true fund accounting or class-based tracking?
2. How does the system handle restricted gifts and releases?
3. Can I generate a Statement of Functional Expenses automatically?
4. What Form 990 preparation support is included?
5. How does donor/gift data integrate with the accounting?
6. What's the total cost including all users and features we need?
7. How long does implementation typically take?
8. What training and support are included?

Making the Transition

Switching accounting programs is a significant undertaking. Plan carefully:

Timing

• Start after fiscal year-end if possible
• Allow 2-3 months for setup and parallel testing
• Avoid major transitions during audit season

Data Migration

• Clean up your chart of accounts first
• Decide on a cutover date for historical data
• Verify opening balances match between systems

Training

• Identify power users for advanced training
• Create organization-specific procedures
• Document workflows for common tasks

Parallel Operation

• Run both systems for at least one month
• Reconcile key reports between systems
• Don't close the old system until you're confident

The accounting program your nonprofit uses shapes everything downstream — your reports, your compliance, your audit experience, and how much time your team spends on manual workarounds. Choosing the right one isn't a technology decision. It's an operational decision that affects every department in your organization.

Schedule Your Free Setup | Explore Features

---

Related:

• Nonprofit Accounting Software — Why your organization needs specialized tools
• Fund Accounting for Nonprofits — A complete primer on fund accounting principles
• Fund Accounting — See how Alignmint handles nonprofit accounting