Nonprofit finance basics for executive directors and boards
Updated 16 October 2026
A nonprofit's finances rest on three separate amounts. Revenue is what the organization has earned or been promised. Cash is what sits in the bank. Usable cash is the part of that bank balance the organization may spend on any purpose. Each decision about hiring, programs or reserves depends on which of the three amounts is in front of the reader. This page sets out the figures to read, the ways nonprofit books differ from a company's books, and where to start when the books run behind. The worked examples use round figures as an illustration.
Five figures to read every month
An executive director and a treasurer can follow the organization with five figures.
- Total cash on hand, which is the bank balance.
- Unrestricted cash, which is the part of the bank balance free for operations.
- Months of operating reserves, found by dividing unrestricted cash by a typical month of spending.
- The variance between budget and actual results for the year to date.
- A cash forecast for the next 90 days.
The bank holds $480,000. Of that, $180,000 belongs to restricted grants, so unrestricted cash is $300,000. Monthly expenses run $75,000, so reserves cover 4 months. Expenses for the year to date are $960,000 against a budget of $900,000, which is $60,000 or 6.7% over plan. The 90-day forecast then shows whether the next three months add to the $300,000 or draw it down. The figures are an illustration.
Revenue, cash and usable cash
A grant award letter creates revenue. The funder's payment creates cash on the day it lands. The share of that payment the organization may spend freely, after restrictions, the funder's indirect rate and timing, is usable cash. Leaders who treat the three amounts as one are the ones who meet a cash surprise. The books report each amount on its own line.
A funder awards $1,000,000 for a two-year program. The full award is revenue when the letter arrives. The first payment is $250,000, so $750,000 is still to come. The grant pays an indirect rate of 10%, so $25,000 of the first payment covers general costs and the rest pays for the program. The organization gained $1,000,000 of revenue, $250,000 of cash and $25,000 of money it may use outside the program. The figures are an illustration.
Restricted and unrestricted money
Restricted money comes with conditions. The donor or funder limits it to a named program, a named period or a named activity. Unrestricted money pays for everything else. It covers rent, finance and leadership, it pays for new capacity, it bridges the weeks before a grant payment arrives, and it pays for the costs that grants leave out. An organization with large restricted grants and a small unrestricted balance has less room to act than its total assets suggest.
An organization holds $5,000,000 in restricted grants and $50,000 in unrestricted cash. Its general costs outside programs run $40,000 a month. The unrestricted cash covers 1.25 months of those costs. The $5,000,000 cannot pay that rent or those salaries, because each dollar of it belongs to a program. The figures are an illustration.
Where nonprofit accounting departs from company accounting
Nonprofit books use the same words as company books, and four areas work differently.
- Fund accounting. Net assets are grouped by restriction into unrestricted, temporarily restricted and permanently restricted pools, and each pool has its own rules and reports.
- Functional expenses. Each expense is reported as program services, management and general, or fundraising. A wrong split changes what the Form 990 shows.
- Revenue recognition. Contributions, grants, exchange transactions and conditional promises each follow their own timing rules.
- Cash basis and accrual basis. The cash basis records income and costs when money moves. The accrual basis records them when they are earned or owed. Small nonprofits often keep cash-basis books, and auditors expect accrual books. Moving later costs more work.
A CPA and auditor confirm how each rule applies to a given grant or gift.
A program spends $40,000 in June under a reimbursement grant, and the organization bills the funder on 30 June. The funder pays in August. Cash-basis books show the $40,000 of cost in June and the $40,000 of income in August, so June looks $40,000 short. Accrual books show the income in June next to the cost, with $40,000 owed by the funder until August. The figures are an illustration.
The chart of accounts sets up every report
A nonprofit's chart of accounts is the list of categories every transaction is coded to. It records the program structure, the edges of each grant, the fundraising categories and the method for splitting shared costs. A chart built that way lets grant reports and board reports come straight out of the ledger. A chart built around a generic company template leaves staff to rebuild each grant report by hand.
An organization has 5 grants, and each funder asks for a quarterly report. That is 20 grant reports a year. When every expense is tagged to its grant and program at entry, each report is a filtered run of the ledger. When expenses are not tagged, each of the 20 reports starts with a search through the year's transactions. The figures are an illustration.
Where to start when the books run behind
Five changes come first.
- Rebuild the chart of accounts to match the programs and grants.
- Set a monthly close calendar with the same dates each month.
- Reconcile bank, investment and credit card accounts within 10 days of month end.
- Give the board a one-page financial summary at each meeting, in the same layout each time.
- Keep the bookkeeper's job apart from the accountant's or CFO's job.
March ends on the 31st. Bank, investment and card reconciliations are finished by 10 April. The controller reviews the month and the one-page summary goes to the treasurer next. The same dates repeat for April, so the April reconciliations are finished by 10 May. Twelve closes a year run on one calendar. The figures are an illustration.
Who answers for the numbers
The executive director runs the finances day to day. The board, and its treasurer and finance committee in particular, carries the fiduciary duty. Each role supports the other, and neither one replaces the other.
The books for October close on 10 November. The executive director reviews the draft statements by 12 November and writes the note on variances. The treasurer reviews the statements and the note by 15 November. The finance committee discusses them at its meeting on 20 November. The figures are an illustration.
What this means for a nonprofit
Revenue, cash and usable cash are three separate amounts, and the books report each one. Restricted money pays only for its named purpose, so months of reserves count unrestricted cash alone. Each expense carries one of three functional labels. A chart of accounts built around programs and grants produces grant reports from the ledger. A fixed close calendar with reconciliations done within 10 days of month end gives the board current figures.
Getting the books current
Averan Advisors keeps nonprofit books and runs the monthly close. See bookkeeping for the monthly work and controller services for the close and board reporting.
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