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Direct costs are expenses tied to a specific program or grant; indirect costs are shared overhead that supports multiple activities and often must be allocated.
In nonprofit and grant accounting, direct costs can be identified with a particular program, project, or grant, such as a counselor's salary charged only to that program or curriculum purchased for one initiative. Indirect costs (overhead or shared costs) benefit more than one program; examples include rent, utilities, central accounting, and organization-wide insurance.
Because funders and Form 990 functional expense reporting often require costs to be assigned to program services, management and general, and fundraising, organizations develop allocation methods (and sometimes an indirect cost rate) to distribute shared expenses fairly. Clear policies and consistent cost drivers, such as square footage, headcount, or time tracking, strengthen audit readiness and grant compliance.
Separating and allocating direct and indirect costs helps you price programs accurately, comply with grant rules, and report functional expenses with confidence.
Allocations within Aplos helps you split shared costs fairly and consistently.
You can create cost drivers and use them to split income or expenses across funds or tags such as departments, projects, or locations. For example, you can allocate an electricity bill across locations by square footage, or split printing costs across departments. You record the original transaction to an allocation fund or tag, then post the allocation using your cost driver, so each program's reports reflect its fair share.
An indirect cost rate is a percentage or formula used to recover or assign shared overhead to programs or grants. Rates may be negotiated with federal agencies or set by organizational policy, so check requirements with your funder, CPA, or grants advisor.
Not always. If a position works solely on one program, that portion may be a direct cost. Shared executive or finance time is commonly treated as indirect or allocated based on time records.
Functional expense reporting groups costs by program services, management and general, and fundraising. Direct coding plus allocations of shared costs feed that statement.
Allocations is an add-on that an administrator on your account can turn on. You can review the current options for your subscription in Aplos.
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