Can knowing accounting grow your nonprofit and lead to nonprofit sustainability? If you don’t understand accounting principles, your nonprofit may struggle to fulfill your mission and achieve your goals. Why is understanding the principles of accounting so fundamentally important?
Knowing Accounting Strengthens Nonprofit Sustainability
In order to achieve your financial goals, you will at least need to know how to do double-entry bookkeeping. This knowledge accomplishes so much on different levels. Not only will it help you calculate your revenue by balancing debits and credits it will make you more accountable by understanding the process of balancing the books in a moral sense.
What Do Pizza and Accounting Have In Common?
This concept goes way back to Renaissance Italy, when merchants and property owners used accounting not only for their businesses but to make a moral reconciliation with God, their cities, their countries and their families. They even kept moral accounting records – tallying up their sins and good acts just like debits and credits. During this time, accounting was a key skill to learn, where a majority of citizens attended accounting schools.
Double-entry accounting spread to the Netherlands during the early 1500s, making this country the center of accounting education, world trade and early capitalism. Double-entry accounting was practiced by everyone from prostitutes to scholars. The best role model when it comes to being more accountable are the Dutch. It was the Dutch in 1602 who invented modern capitalism and the first publicly traded company – the Dutch East India Company. This became the first official stock market in Amsterdam. It was the well-maintained culture of accountability that kept this company stable for a century.
History of Audits and Accountability
But the interesting thing that came out of this financial system was fraud. Investors complained that books were tampered with and demanded a “reeckeninge” or what we know as a nonprofit financial audit. The state did not allow the books to be audited in public, but they did conduct an internal audit which satisfied the company and state accountability. This set the stage for the common practice of auditing the books as we know it now.
However, in our society today, people have stopped learning double-entry bookkeeping, leaving it to specialists and accounting professionals. Most people don’t even know what it means. This leads us to why this is so important when it comes to nonprofits. Nonprofits need to ask themselves whether they want their nonprofit to be stable, sustainable and accountable. An excellent place to start would be to make double-entry accounting and basic finance part of the curriculum in high school, just like during earlier times.
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Bottom Line
Knowing accounting gives you a clear picture of what financial accountability really means and how it relates to the audit process. It also gives you the insight to make your nonprofit more sustainable.
Accountability is the foundation of all nonprofits. As a nonprofit you must account for every penny that your nonprofit receives. Without the proper accounting knowledge and tools, this task can be complicated and confusing to maintain. Without an understanding of accounting, nonprofits may be prone to more “reckonings”.
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