Nonprofit healthcare organizations are largely focused on providing healthcare to the community, however they can not ignore the business-critical aspects of the operation. In addition to adhering to GAAP standards, there are strict guidelines to follow which ensure that the organization complies with regulations and shows accountability by submitting accurate financial statements annually. 

Nonprofit organizations are required to be as transparent as possible with their finances. In this article, we unpack some important factors to note in terms of financial reporting. 

     1- Fund Accounting

Nonprofits are required to track the amount of money assigned for various purposes, this process is known as fund accounting. In layman’s terms, it refers to monitoring how much of the organization’s funds go into patient care, research, and so on. This is important because financial statements need to accurately reflect fund allocation.

     2- Revenue Recognition

Nonprofit healthcare organization accounting principles state that nonprofits must accurately recognize and account for all revenue. Because NPO healthcare organizations receive income from various sources like government grants and donations, and are often under extreme scrutiny, they need to accurately recognize and account for every cent. When it comes to revenue recognition, organizations accounting observes precise guidelines, such as Accounting Standards Codification (ASC) 606 from the Financial Accounting Standards Board (FASB). This is in addition to complying with Generally Accepted Accounting Principles (GAAP).

To learn more about revenue recognition implementation Q&As click here.

     3- Net Assets Classification

Nonprofit healthcare organizations have three classifications when it comes to assets; unrestricted, temporarily restricted, and permanently restricted. Funds that are donated without a specific use being stipulated can be used for general expenses and are referred to as unrestricted net assets. Funds that come with specific instructions or limitations on the other hand are referred to as either temporarily or permanently restricted net assets.

     4- Grant Accounting

Grant accounting is incredibly important for nonprofits. When relying on government agencies and foundations to survive, organizations have the responsibility to accurately report on grant usage. These funds are used to support invaluable programs and if usage is not reported accurately the organization could be penalized or completely lose the funding.

Grant accounting is a complex topic in its own right so if you want to learn more about nonprofits being grant ready click here.

To learn The Importance Of Accurate Grant Accounting For Your Nonprofit Organization click here.

     5- Expense Allocation

Expense allocation is when funds are distributed accurately across programs, administrative functions, fundraising activities and more. When this is done accurately it ensures financial statements provide a clear overview of how resources were utilized, making it a crucial part of nonprofit accounting.

     6- Compliance and Regulatory Reporting

In order to verify that a company is adhering to industry standards, regulations and reporting requirements compliance reports are used. Accurate reporting includes reporting to agencies like the IRS and complying with SOX for governance and financial controls. Reporting is subject to the size, funding sources, and location of the organization while regulations and compliance depend on federal, state, and local regulations. 

     7- Audited Financial Statements

Annual financial statement audits are standard practice for nonprofit organizations, including those in the healthcare sector. Audits by independent certified public accountants (CPAs) give donors and other stakeholders the assurance that the statements are accurate and comply with accounting standards.

     8- Transparency and Stakeholder Communication

Transparency is one of the pillars of success for nonprofit organizations. Accounting for healthcare organizations requires effective communication of financial information to board members, donors, patients and the general public. Because of the nature of the business, its ability to provide clear and easy to understand financial reports is paramount to building trust between all stakeholders. 

     9- Internal Controls

Establishing and monitoring internal control procedures are important in all institutions, particularly for charitable organizations. Internal controls safeguard assets, and ensure financial integrity while preventing fraud, errors, and mismanagement of funds.

To learn more about the importance of nonprofit internal controls in accounting click here.

     10- Budgeting and Financial Planning

Financial planning is fundamental for an enterprise regardless of size or service. Having a strong financial plan allows an operation to set financial goals and allocate resources efficiently. This is especially important for nonprofits because ensuring long-term sustainability requires managing limited income streams meticulously.


To learn more about Future Proofing Your Nonprofits: Forecasting And Scenario Planning click here.

To learn more about Best Practices For Budgeting And Forecasting In Your Nonprofit Organization click here.

Why Choose Sage Software For Nonprofit Accounting

Accurate reporting is essential for healthcare organizations and Sage software excels in this. Not only does the cloud-based software offer accurate reports which meet various regulations, but it is also convenient, not requiring downloads of installations. Sage software works for organizations of various sizes as it is scalable and fully customizable. 

To learn more about Sage accounting software for nonprofit healthcare click here.


When operating a nonprofit you are required to adhere to specific accounting and financial reporting guidelines. Organizations need to comply with various regulations while maintaining transparency in all financial matters due to being accountable to stakeholders. 

To learn more about nonprofit healthcare accounting watch this video here.

Why Outsource With Lescault And Walderman 

With decades of combined business consulting experience providing accounting, bookkeeping and CFO services Lescault And Walderman is ahead of the curve. Not only does LWI have more than 30 accountants across 18 states but its service can be uniquely tailored to law firm needs.

For more articles on Nonprofit Organization Accounting: 

Why Financial Management Of A Nonprofit Is Harder Than Running A For-Profit

The Role Of CFO Services In Helping Nonprofit Organizations Increase Their Impact

How To Choose The Right Accounting Software For Your Nonprofit Organization

Key Metrics To Track For Nonprofit Financial Health

4 Reasons Your NonProfit Needs To Consider Outsourced Accounting

Stay in the loop

Subscribe to our free newsletter.