Categorizing Expenses – Form 990

When setting up the books for your nonprofit, specifically the chart of accounts, one of the best things you can do is check out the 990-EZ expense worksheet to categorize your income and expenses for Form 990-EZ.

Setting Up Your Nonprofit Fund Accounts

Nonprofits track their finances with a method called fund accounting. This method of accounting allows you to track your organization’s resources as well as demonstrate whether your nonprofit is stewarding those resources well.

There are three main categories of expenses to track as a nonprofit on the Form 990, in addition to many more expense accounts and funds. These main categories are:

1. Program Services
2. Management, General, And Administrative
3. Fundraising

Let’s take a look at them one by one.

1. Program Services

This is where you track the expenses that directly support your mission. In some cases, you may allocate costs over two or more categories. For example, if your nonprofit is an animal shelter, the types of expenses that would be included here are the cost of the veterinary services provided, direct housing of the animals, payments to subcontractors, such as veterinarians, etc.

2. Management, General, And Administrative

This category may include management and personnel salaries, conferences and meetings, insurance, etc.

3. Fundraising

These expenses will include the cost of fundraisers, such as a dinner, setup fee, and hall rental, as well as the cost of advertising the event. Even though both of these are fundraising expenses, you will record them on two different spots on the Form 990.

That brings us full circle. Looking over the Form 990 first will help make life much easier next May 15! If you are ready to file Form 990-EZ, try Aplos eFile for nonprofit tax prep software.

Good luck! Remember, this blog is just a helpful resource and is not meant to be a substitute for professional services. Always consult a CPA or trusted professional when seeking tax or accounting advice.