Guide To Basic Bookkeeping For Not For Profit

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Guide to Basic Bookkeeping for Not-for-Profit Organizations
December 2002
Guide to Basic Bookkeeping for Not-for-Profit Organizations
A Guide for Grantees of the USDA Section 523 Self-Help Housing Program
Developed jointly by the Self-Help Housing Technical and Management Assistance (T&MA)
Florida Non-Profit Housing, Inc. (FNPH)
Little Dixie Community Action Agency, Inc. (LDCAA)
National Council of Agricultural Life and Labor Research Fund, Inc. (NCALL)
Rural Community Assistance Corporation (RCAC)
Funded by: United States Department of Agriculture, Rural Development
The work that provided the basis for this publication was supported by funding under an award with
the U.S.D.A. Rural Development. The substance and findings of the work are dedicated to the public

The T & MA Contractors are solely responsible for the accuracy of the statements and interpretations
contained in this publication. Such interpretations do not necessarily reflect the views of the

Published in 2002 by the T & MA Contractors, this guide is designed to provide accurate and
authoritative information in regard to the subject matter covered. It is distributed with the
understanding that the authors are not engaged in rendering legal, accounting, or other professional
services. If legal or other expert assistance is required, the services of a competent professional person
should be sought

All rights reserved. The text of this publication, or any part thereof, may not be reproduced in any
manner whatsoever without written permission from the T & MA Contractor. If you wish to make or
distribute copies, please write a letter indicating the number of copies that you wish to make or
distribute, the size and type of audience to whom you wish to distribute, and the type of organization
or agency that you are. Send the letter to:
Region I Region II
Florida Non-Profit Housing, Inc Little Dixie Community Action Agency, Inc

P.O. Box 1987 502 W. Duke
Sebring, FL 33871-1987 Hugo, Oklahoma 74743
(863) 385-2519 (580) 326-5165
[email protected] [email protected]
Region III Region IV
NCALL Research, Inc. Rural Community Assistance Corporation
363 Saulsbury Rd. 3120 Freeboard Drive, Suite 201
Dover, Delaware 19904 West Sacramento, CA 95619
(302) 678-9400 (916) 447-2854
Refer to the Introduction Chapter of this guide to identify the appropriate T & MA Contractor to contact for your area

After receipt of a consent and conditions letter you may copy and distribute the manual in accordance with such terms and
conditions as set and approved by the T & MA Contractors

December 2002
Guide to Basic Bookkeeping for Not-for-Profit Organizations
Table of Contents
Chapter Page
Introduction to the Mutual Self-Help Program .………………….. 1
Additional Training Materials…………………………………….. 7
Introduction to this Guide…………………………………………. . 11
Basic Bookkeeping Principles………………………………………. 12
Assets, Liabilities, and Net Assets
The Bookkeeping Equation
Business Transactions and Changes in the Bookkeeping Equation
The Ledger
Manual Bookkeeping System………………………………………. 17
Trial Balance
Six Column Worksheet
Financial Statements
Monthly Financial Monitoring
Cash vs. Accrual
Closing the Ledger
Cash Systems and Checking Accounts
The Bank Statement
The Petty Cash Fund
Automated Accounting System……………………………………. 32
Addendum………………………………………………………….. 38
SFA 117
SFA 116
Summary……………………………………………………………. 40
List of Appendices.………………………………………………… 41
December 2002
Guide to Basic Bookkeeping for Not-for-Profit Organizations
The Self-Help Program
Self-Help Housing is just as it sounds: Participants working together to build their own homes

This cooperative effort is a direct application of the church and barn raising techniques of the Amish
and Mennonites. The participants supply the necessary labor while qualifying for mortgage financing
to purchase land, materials, and subcontract work on very technical items. A private nonprofit
corporation, public body, or rural town can obtain a grant from Rural Development to hire skilled
staff, rent office facilities, pay for mileage, and purchase tools. This staff then works with the
participants by providing the assistance and training necessary to fulfill the goals of the self-help
housing program. The specifics of the program are described below

With the assistance of the skilled staff, an association of generally 4 to 10 households is
formed. (Once the grant is completed, at least 40% of the total participants served must have been
very low income, 50% or less of the county median income.) They select lots, house plans, and apply
for individual mortgage loans. While participants await loan approval, the group studies the
responsibilities of homeownership, construction techniques, tool usage, safety, homeowner’s
insurance, taxes, home maintenance, and money management. This time is known as the pre-
construction stage

Once the loans are approved, the group begins to build under the guidance of a skilled
construction supervisor. The participants must complete a minimum of 65% of the construction labor
tasks, until the group of homes is completed; usually the more technical work is subcontracted out

The construction stage lasts from 6 to 12 months, depending on the size of the group. Participants
work during their spare time (evenings, weekends, and days off) so as not to interfere with the regular
household employment. Rural Development loans feature interest rates ranging from 1% to the
market rate, depending on the household’s adjusted annual income. The repayment period is 33 or 38
years and no down payment is required

1 December 2002
Guide to Basic Bookkeeping for Not-for-Profit Organizations
Rural Development
Rural Development is an agency of the United States Department of Agriculture. It was
originally a credit agency for lower income farmers who could not qualify for loans elsewhere. Since
the 1960's rural non-farm households have been eligible for mortgage credit. Rural Development’s
function as a lender is significant because private credit institutions in rural areas are relatively few in
number, smaller, and often impose more rigid terms, which can be a barrier to homeownership

The Rural Development mission is to help rural Americans improve the quality of their lives

Rural Development helps rural communities meet their basic needs by:
• Building water and wastewater systems,
• Financing decent, affordable housing,
• Supporting electric power and rural businesses, including cooperatives, and
• Supporting community development with information and technical assistance

Rural Development has been providing the funds for the self-help housing program since the
late 1960's. They provide technical assistance grants to eligible entities to start and implement the
program and they thoroughly review the preapplication and final application before a grant is awarded

When a grant is awarded, Rural Development is saying that there is a need for self-help housing in this
area; this agency is suited to administer a self-help housing program; the proposed plan, budget and
schedule are feasible; house plans meet local, state and Rural Development building codes; adequate
building sites are available; the project ingredients are in place; and Rural Development is ready to
provide the financial resources necessary to make the project work. There is no charge to participating
groups. Grant funds provided to grantees by Rural Development do not have to be repaid. It is an
investment Rural Development is willing to make in order to see self-help housing work

Rural Development will continue to monitor and provide oversight in the areas of construction
and administration, through quarterly meetings, construction inspections, and participant accounts
throughout the term of the program

In many cases Rural Development provides another important ingredient to the self-help
program, construction/permanent financing. They are independent of private or conventional lending
institutions; the financing is directly between Rural Development and the borrower. While labor and
construction are group efforts, each applicant must qualify and obtain a loan directly from Rural

2 December 2002
Guide to Basic Bookkeeping for Not-for-Profit Organizations
Rural Development Offices
Rural Development usually operates from four levels: national, state, area and local

The National Rural Housing Service Administrator in the National Office and the State
Directors are politically appointed – all others are federal civil service employees

Rural Housing Service National Office
The Rural Housing Service National Office is responsible for developing policy and
interacts with Congress for legislation development and program funding. The
National Office also awards and monitors all Section 523 grants. The program staff
at the national level maintains reports and statistics on operating self-help organizations
and projected needs for funding

Rural Development State Office
The State Office has the approval authority over the smaller Section 523 grant
applications. Section 502 loans are allocated on a state-by-state basis and the State
Office allocates the 502 money based on a State formula. There are additional staff
members who are key to the operation of a self-help program located in many State
Rural Development State Director
Rural Housing Program Director
Rural Development State Architect
Rural Development Appraiser
Rural Development Housing Specialist
Rural Development Area Office
The Rural Development Manager is responsible for the Section 523 grant. It is
his or her responsibility to ensure that the grant is operated effectively and in
accordance to regulations. The Rural Development Manager will evaluate the Section
523 self-help agencies on a quarterly basis and review grant applications for new and
on-going programs. In addition, Rural Development Construction Analysts are usually
available through this office

3 December 2002
Guide to Basic Bookkeeping for Not-for-Profit Organizations
Rural Development Local Office
Within this office, the Community Development Manager is responsible for
making the Section 502 mortgages to participating applicants of each group. He or she
will be responsible for monitoring the 502 loans and will also be the co-signer on the
participant checking accounts. Usually, this office does construction inspections

The Rural Development Section 502 Rural Housing Loan
Many applicants that participate in the self-help housing program use Rural Development
Section 502 loan to finance their homes. Section 502 loans are only available to families living in
rural areas. "Rural" is defined as towns with populations of 10,000 or fewer, and designated cities
with populations between 10,000 and 20,000 in counties that are not associated with Standard
Metropolitan Statistical Areas (SMSA) where a serious lack of mortgage credit exists

In order to qualify for a Section 502 loan, prospective self-help applicants must meet Rural
Development income eligibility requirements as low-income or very low-income. They must be
credit-worthy, have repayment ability for the loan requested, and be unable to secure credit from other
sources. The low-income measure is 80% or less of the county median income, based on family size

Very low-income is defined as 50% or less of the county median income, based on family size. These
income standards, established by HUD and adopted by Rural Development, are subject to local
variation and periodic change. Current information on income standards and eligibility requirements
for Section 502 loans is available at Rural Development local offices

The repayment period for the Section 502 loan is either 33 or 38 years, and the interest rate is
between 1% and the current market rate. The actual rate of interest the borrower pays depends on the
borrower's income, as does the loan term. If a borrower is eligible to pay less interest than the market
rate, the borrower then receives a subsidy called “payment assistance”. The amount of payment
assistance a borrower receives is determined by the loan amount, loan period, and the household
income. The assistance makes up the difference between the full loan rate and the rate the participant

Section 502 funds are advanced from the Rural Development finance office in St. Louis and
disbursed by the local offices based on regulatory guidelines. TA grantees prepare the drawdowns and
checks for each participant's account as needed to purchase materials for different phases of
construction. Note that the participant's loan payments are deferred during construction

4 December 2002
Guide to Basic Bookkeeping for Not-for-Profit Organizations
When all the money is withdrawn from a participant's account, Rural Development's finance
office sends payment books to the participant. The participant's first loan payment is due within thirty
days of termination of deferred payments. Payments then go directly to Rural Development’s
Centralized Servicing Center (CSC) in St. Louis

The 523 Mutual Self-Help Housing Technical Assistance Grant
In order to enable organizations to operate a mutual self-help housing program, Rural
Development provides grant funds to operate and oversee mutual self-help housing programs. Each
TA grant is usually for a period of up to two years, and is available to public and private nonprofit
organizations and units of state or local government. The amount of grant funds an organization can
receive is based upon how many houses they build in a grant period. An organization can receive 15%
of the average cost of a new home financed under the 502 program in their area, for every home they
are planning to build

Activities that are allowable uses of Section 523 Technical Assistance grant funds include:
• Recruiting eligible households to participate in the self-help program;
• Holding training meetings with participants on the self-help process and
homeownership topics such as mortgages, insurances, taxes, and maintenance;
• Assisting participants obtain and develop building sites; obtaining or creating Rural
Development-approved house plans and helping participants select theirs;
• Helping participants bid and select building supplies and subcontractors; train
participants in construction techniques and provide construction supervision;
• Supervise participant Section 502 loan accounting, including:
--Totaling invoices and itemizing payments to suppliers and subcontractors;
--Maintaining records of deposits and withdrawals;
--Preparing checks (accompanied with invoices and statements)

Disallowed activities using Section 523 Technical Assistance grant funds include:
• The use of any TA funds to pay staff to provide labor on the houses;
• Purchasing any real estate or building materials for participating families;
• Paying any debts, expenses or costs which should be the responsibility of the participating
• Any lobbying activities as prohibited in OMB Circular A-122

5 December 2002
Guide to Basic Bookkeeping for Not-for-Profit Organizations
The T&MA Contractors
In 1979 the appropriations language was changed to authorize the use of Section 523 grant
funds to contract for technical assistance to self-help grantees. There were initially six Technical and
Management Assistance (T&MA) Contractors; currently there are four

Rural Development contracts with these groups to assist operating and potential self-help
housing grantees across the country. This assistance comes in the form of staff and board training,
grant management, development of applications, 502 loan program, training, newsletters and
conferences, among other services. These services are provided at no cost to the grantee

The four contractors are:
• Florida Non-Profit Housing - covering Region I, the Southeast, including the states of
AL, FL, GA, MS, NC, SC, TN, Puerto Rico and the Virgin Islands

• Little Dixie Community Action Agency, Inc. – covering Region II, the South Central
US, including the states of AR, KS, LA, MO, ND, NE, NM, OK, SD, TX, WY

• NCALL Research, Inc. – covering Region III, the Northeast and Midwest, including the
states of CT, DE, IA, IL, IN, KY, MA, MD, ME, MI, MN, NH, NJ, NY, OH, PA, RI,

• Rural Community Assistance Corporation (RCAC) – covering Region IV, the Western
US, including the states of AK, AZ, CA, CO, HI, ID, MT, NV, OR, UT, WA

6 December 2002
Guide to Basic Bookkeeping for Not-for-Profit Organizations
Additional Training Materials
The T&MA Contractors have produced a variety of other training materials for the purpose of
assisting grantees and training grantee staff. The following is a list of the available guides. Please
contact your T&MA Contractor for a copy or for more information

Board of Directors
Boards of Directors play a critical role in the success of any non-profit organization. With this
in mind, this guide was designed for use by board members of any housing agency. This guide is
intended primarily as a reference and not to dictate that, "this way is the only way". However, it is an
informational resource that may be used as a training tool and can provide new insights and a clearer
understanding of nonprofit organizations, board meetings, operations, agency planning, administration
of agency personnel, teamwork, orientation for new board members, federal accounting requirements,
and self-help agency activities

Project Director’s Guide
It is the responsibility of the Project Director or Executive Director to administer a successful
Mutual Self-Help Housing Program. This guide should be used as an important resource to assist with
the goal. It can also be used as a training manual when new staff is hired. The Project Director’s Guide
takes a general look at the Self-Help Program as well as providing information on required reports,
program criteria, grant and financial management, personnel and fair housing

Financial Management for Federally-Funded Organizations
The purpose of this Financial Management Guide is to aid new and operating grantees with the
development of financial management systems and policies that are compatible with the fiscal
responsibilities set forth by the funding agency (Rural Development) and the Office of Management
and Budget (OMB). While self-help housing programs that have been operating for many years may
have sophisticated financial systems and policies, others are lacking written, established financial
procedures that assure proper internal controls

This Financial Management Guide offers grantees sample information, guides, and checklists
for virtually all fiscal aspects of self-help housing including: Section 523 grant accounting, Section
502 participant loan accounting, establishing accounting systems, program and payroll expenditures,
tax requirements, personnel records, federal accounting requirements, and audit preparation

7 December 2002
Guide to Basic Bookkeeping for Not-for-Profit Organizations
While this Guide has been developed specifically for self-help housing grantees, the principles
and information provided are applicable to any nonprofit housing development corporation utilizing
federal financing or administrative funding

Guide to Accounting for Individual Borrower 502 Loan Accounts
In addition to establishing and maintaining an accounting system for the Section 523 grant
funds, the Self-Help Housing grantee is responsible for keeping an accurate account of the
disbursement of funds from the individual self-help participants' Section 502 loan accounts

Instruction 1944-I indicates that technical assistance provided by the grantee to the participants should
include "providing financial supervision to individual families with Section 502 loans, which will
minimize the time and effort required by Rural Development in processing borrower expenditures for
materials and contract services.” In order to fulfill this accounting responsibility, the grantees
must establish a record keeping system with clear procedures for handling the purchase of construction
supplies, invoices from subcontractors and vendors, and accounting for expenditures from participant
loan funds. This guide provides guidelines for self-help grantees to use in designing the procedures
necessary for a minimum standard of control and a system of checks and balances to protect the
participants and the grantee

Group Coordinator
The job duties and responsibilities of a Group Coordinator are crucial to the success of the self-
help program. The Group Coordinator is the person that is responsible for locating interested
participants, screening them and packaging their 502 loan applications, preparing them for the
construction phase and homeownership, and helping to track their progress during construction. If one
of these duties is not fulfilled, the entire program is put in jeopardy

Because the Group Coordinator often wears so many hats in a self-help agency, there are other
guides that the Group Coordinator is going to need to read in addition to this one. The 502 Loan
Processing Guide is crucial to the success of qualifying and processing families, the Preconstruction
Meetings Guide will help guide the Group Coordinator through these meetings, and the SHARES
Manual will instruct the Group Coordinator on the task of entering information into the SHARES

This guide will help the Group Coordinator in the areas of recruitment, communication,
forming a group, group management, motivation, and money management

8 December 2002
Guide to Basic Bookkeeping for Not-for-Profit Organizations
502 Loan Processing Guide
(This guide is currently under development.)
While the labor and construction is a group effort, each participant must qualify and obtain a
loan individually from Rural Development. In order to qualify, a household must fall within the
income guidelines set by Rural Development, must have demonstrated repayment ability, must have a
good credit rating, and should have a low debt load. Because the 502 self-help loan process can be
complicated for the individual, the technical assistance staff will pre-screen participants for program
eligibility and prepare the application packages for Rural Development

The 502 Loan Processing Guide will help to train the Group Coordinator or appropriate staff
person in packaging these loans. The loan terms, application forms, credit reports, and the additional
documentation required are all covered

Preconstruction Meetings Guide
(This guide is currently under development.)
Each self-help grantee is responsible for organizing participants into groups, which remain
together from loan processing through construction. The organization of participants into groups
reinforces the "mutual” aspect of the self-help program because participants within a group are
expected to work on each other’s house until all houses in the group are completed. In addition to
organizing participants into groups, self-help programs are responsible for explaining the self-help
concept and methodology to participants, and for educating participants about their responsibilities as
self-help participants, 502 loan borrowers, and homeowners. This is achieved through a series of “pre-
construction meetings.”
Group meetings provide self-help grantees, Rural Development, and the self-help participants
with an opportunity to develop bonds which can contribute to the timely construction of houses – of
which all can be proud – and which can place participants on a sound footing for assuming their
homeownership responsibilities

The information and materials contained in this guide are presented as informational resources,
ready to use formats, or samples to be modified to suit each grantee’s individual circumstances

9 December 2002

Guide to Basic Bookkeeping for Not -for-Profit Organizations December 2002 A Guide for Grantees of the USDA Section 523 Self -Help Housing Program Developed jointly by the Self …

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