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Well, carefully and consistently... but we know you want a little more than that, so here we go: Allocate or split expenses among programs and funding sources based on a reasonable and consistent method. Documenting your allocation methodology helps maintain transparency.
Proper expense allocation is essential for your nonprofit to accurately reflect how funds are used to support your various programs and activities. It involves dividing expenses among different categories or functions based on a reasonable and consistent method.
To ensure accurate expense allocation, start by categorizing expenses into distinct groups, such as program expenses, administrative costs, and fundraising expenses. Then, allocate each expense to the appropriate category based on its primary purpose and benefit.
For instance, if a staff member's salary is split between program-related tasks and administrative duties, allocate the salary expense accordingly. Be consistent in your allocation methods to maintain transparency and facilitate accurate financial reporting (this is really important 🫣).
(Pro tip: In QBO, use customers or projects vs locations - or even classes - for this tracking. Trust us on this one.)
Proper expense allocation not only ensures compliance with accounting standards but also helps donors and stakeholders understand how their contributions are utilized to support your nonprofit's mission.
