Common Accounting Terms For Not For Profits

Not-for-profit (NFP) accounting can feel like learning a new language. Acronyms, standards, and specific frameworks dominate the space, but understanding these key terms is essential for any NFP organisation aiming to stay compliant and operate efficiently. In this post, we would like to start a conversational journey through some common accounting terms and acronyms you’re likely to encounter in the Australian not-for-profit sector. We hope to delve deeper over the coming months.

The AASB is the cornerstone of accounting regulation in Australia. It develops and maintains the accounting standards all organisations, including NFPs, must follow. Think of the AASB as the rulebook that ensures transparency and consistency in financial reporting. We understand that these rules can be challenging and we often hear that they “don’t make sense”.  Compliance with these standards is non-negotiable, but expert guidance can help navigate these technical waters.

Grants come in all shapes and sizes, from large government-funded initiatives to one-off projects funded by philanthropic organisations or corporate donors. Securing grants often involves competitive tendering or proposals, but some grants are based on long-standing relationships. Resources like GrantConnect list available opportunities, and programs like Strategic Grants provide training to help organisations build robust grant application processes. Understanding the nuances of grants can significantly enhance an NFP’s funding strategy and help shape its accounting and reporting.  Sometimes, Grants are NOT Grants according to accounting rules, and interesting concepts are applied to make the distinction. To find out more this document from the AASB is worth a read.

The ACNC is the regulatory body that oversees charities in Australia. Its mission is to foster trust in the NFP sector, provide support, and reduce unnecessary red tape. Registering with the ACNC is a crucial first step for any charity, as it opens doors to tax concessions and deductible gift recipient (DGR) status. Additionally, the ACNC offers governance standards that NFPs must adhere to, ensuring accountability and effective management. It is worth noting that not all NFPs are charities but all charities are a NFP.

A Public Benevolent Institution is a specific type of charity that works to relieve poverty, distress, or disadvantage. Examples include hospices, disability services, and low-income housing providers. PBIs often qualify for tax concessions and may receive DGR status, making them attractive to donors who can claim tax deductions for their contributions. To achieve this status, registration with the ACNC and approval from the Australian Taxation Office (ATO) is essential.

Ever wondered why some charities emphasise “tax-deductible donations”? It’s because they are endorsed as Deductible Gift Recipients (DGRs). This status allows individuals and businesses to claim their donations as deductions on their tax returns. For NFPs, achieving DGR status can boost fundraising efforts, particularly for public appeal campaigns. However, strict eligibility criteria apply, and registration with the ACNC and ATO is required.

The NSCOA simplifies the way NFPs record and report financial information. It is an accessible starting point for new NPFs unsure of where to begin when establishing their accounting and financial reporting. Originally developed by Queensland University of Technology and now managed by the ACNC, this free tool provides a standardised approach to accounting across the sector. Whether it’s preparing financial statements or meeting reporting obligations, NSCOA is a valuable resource for streamlining processes.

Xero is a game-changer for NFP accounting. This cloud-based software allows organisations to track cash flow, manage payroll, and generate financial reports from anywhere, 24/7. With integrations for CRM, volunteer management, and fundraising tools, Xero is particularly suited to the unique needs of NFPs. At AFG, we’re Xero Advisor Certified, meaning we’re here to help NFPs get the most out of this powerful platform.

Good governance is key to achieving long-term success for NFP boards. The AICD offers valuable resources and training on corporate governance tailored to the NFP sector. Their annual NFP Governance and Performance Study dives deep into directors’ challenges and provides insights on improving board effectiveness. The Institute of Community Directors Australia is another excellent option for those seeking alternative resources.

Understanding these accounting terms and frameworks can empower NFP organisations to operate more effectively, remain compliant, and build stakeholder trust. While the terminology might seem daunting at first, resources like the ACNC, AASB, and NSCOA, as well as tools like Xero, are there to support you.

At Accounting For Good, we work with NFP organisations with a turnover of $1M or more.

Contact us for a free consultation if your organisation needs expert financial guidance. Let us handle your accounting needs so you can focus on what matters most—serving your community and driving positive change.