What is Nonprofit Accounting?
Nonprofit accounting is the financial reporting discipline for charitable foundations, associations, and other entities that do not aim to generate profit. It focuses on accountability to donors and regulators, tracking restricted versus unrestricted funds, and reporting how resources were used to achieve the mission.
How It Works
- Classify funds as unrestricted, temporarily restricted, or permanently restricted by donor instruction.
- Record donations and grants when the resources are received or pledged with reasonable certainty.
- Allocate expenses by programme, management, and fundraising activity.
- Issue annual financial statements and impact reports for donors and regulators.
Saudi Context
Saudi nonprofits, registered with the National Center for the Nonprofit Sector and supervised by the Ministry of Human Resources and Social Development (MHRSD), follow IFRS where applicable. Many also operate under the National Transformation Programme and align with Vision 2030 social impact KPIs. ZATCA provides specific zakat exemption rules for licensed charities.
Example
A Riyadh foundation receives SAR 5 million in donations: SAR 3 million unrestricted and SAR 2 million restricted to a literacy programme. The SAR 2 million is held in a restricted fund and released to revenue only as eligible expenses are incurred.