A simple month-end close for small nonprofits

Why does a monthly close matter for a small nonprofit?

Many small nonprofits only "close the books" once a year, when the auditor or tax preparer asks. That's when problems show up all at once: unreconciled accounts, gifts recorded in the wrong fund, grant money spent on the wrong costs, and payroll that was never split between programs. Fixing a year of that is slow and expensive.

A short monthly routine catches problems while they're small, gives the board numbers it can actually use, and turns the year-end into a formality. It is the single biggest thing a small nonprofit can do to lower its audit or Form 990 cost.

What does the close calendar look like?

The 10-step month-end close

1. Record every deposit and gift. Match donations from your donor database or payment platforms (PayPal, Stripe, DAF payouts) to bank deposits. Record platform fees separately rather than netting them.
2. Reconcile every account. Operating, savings, payroll and every credit card, against the statement. Investigate any item older than 60 days.
3. Update donor restrictions. Record new restricted gifts in the correct fund, and record releases when you spend money on the restricted purpose.
4. Record grant activity. Note grant income, spending by grant, and any amounts receivable from or refundable to funders. Compare grant spending to the grant budget.
5. Allocate payroll. Split salaries, taxes and benefits across programs, management and general, and fundraising, based on timesheets or a documented method.
6. Enter bills and accruals. Record unpaid invoices for the month and any large known expenses not yet billed.
7. Review receivables and pledges. Update pledges receivable, follow up on overdue amounts, and note any you no longer expect to collect.
8. Check the balance sheet. Every balance should be explainable: prepaids, deposits, accrued payroll, deferred revenue and loans. Tie loans to lender statements.
9. Compare to budget. Review revenue and expenses against budget by program and explain large variances in a sentence each.
10. Review and lock. The treasurer or ED reviews the reconciliations and reports, then you lock the month in your software so no one changes it later.

How should a small nonprofit track donor restrictions?

Under GAAP, nonprofits report net assets with and without donor restrictions. A restriction exists when the donor, not the board, limits how or when the gift can be used, such as "for the youth program" or "for next year."

• Keep a simple restricted funds schedule: one row per restricted gift or fund, showing the beginning balance, new gifts, releases and ending balance.
• Record a release each month when you spend on the restricted purpose or the time restriction passes.
• Use classes, funds or tags in your accounting software, but tie the schedule to the general ledger each month.
• Keep the donor letter or email that created the restriction. Auditors ask for it.

Board-designated funds, like an operating reserve the board set aside, are not donor-restricted. Report them as net assets without donor restrictions.

Why allocate expenses by function every month?

Nonprofit financial statements and Form 990 report expenses by function: program services, management and general, and fundraising. If you only allocate at year-end, you'll be guessing. Allocating monthly gives you better data and a documented method auditors can test.

• Payroll: use timesheets or periodic time studies.
• Rent and utilities: square footage used by each function.
• Shared costs: payroll percentages or another reasonable, consistent basis.

Write the method down in one page and reuse it every month.

What should the monthly board package include?

Small boards don't need a 30-page report. One or two pages usually work:

• Statement of financial position (balance sheet), current month vs last year-end
• Budget vs actual for the month and year-to-date, with a sentence on any large variance
• Cash position and months of operating cash on hand
• Restricted funds summary: what's restricted and what was released
• Grants summary: spending to date vs each grant budget, and upcoming reports due

Simple controls that work for small teams

• Separate duties where you can. The person who records transactions shouldn't also be the only one approving payments and reconciling the bank.
• Treasurer review. A board member reviews bank statements and reconciliations every month and initials them. This is a strong control even for a one-person office.
• Two approvals for payments above a set amount.
• Lock closed periods in your accounting software.
• Keep support for every transaction: receipts, invoices, gift letters and approvals.

Common month-end mistakes

• Recording donations net of payment processor fees
• Putting every grant into revenue on receipt without checking for conditions or restrictions
• Never recording releases from restriction
• Leaving old uncleared checks and deposits on the reconciliation
• Changing prior months after the board has seen them

If the routine feels like too much, our bookkeeping and outsourced controller teams run monthly closes for nonprofits. When you're ready for an audit, see our first-audit checklist.

Frequently asked questions

GreyWood CPA PLLC is a licensed CPA firm headquartered in Richmond, Virginia (Virginia Board of Accountancy firm license #134961), serving nonprofits, community associations and businesses nationwide. This article is general information as of October 28, 2026, not legal or tax advice for a specific organization. Rules change, so confirm current requirements before acting.