Short answer
Journal entry audit evidence should show why the entry was posted, what source support proves it, who prepared it, who reviewed it, and whether it affects restricted funds or grants.
Nonprofit journal entry approval evidence guide
Journal entries can carry real audit risk because they change the ledger directly. Some are routine. Some fix errors. Some release restricted funds. Some move grant costs. Auditors want to know why the entry exists and who reviewed it.
Good approval evidence makes the entry easy to follow. It shows the purpose, calculation, source records, account coding, preparer, reviewer, and date.
Separate entry types
Start by labeling the type of journal entry. A recurring depreciation entry needs different support than a restricted fund release or grant correction.
Common types include:
- Recurring monthly close entry
- Payroll allocation entry
- Grant expense correction
- Release from restriction
- Accrual
- Reclass
- Bank correction
- Year-end adjustment
- Auditor proposed entry
The label helps the reviewer know what support to expect. It also helps the auditor filter entries for testing.
Write the purpose in plain language
Every journal entry should have a short purpose note. The note should explain why the entry is needed. It should not just repeat the account names.
Weak purpose: “To reclass expense.”
Stronger purpose: “Move March software invoice from admin to Grant A because the approved invoice and budget show it belongs to the grant reporting system.”
The purpose note should be short, but it must be specific. If someone reads it six months later, they should understand the business reason.
Attach source support
The source support proves the entry. For a payroll allocation, support may include the payroll register, time records, and allocation schedule. For a restricted fund release, support may include the grant agreement, expense detail, and release calculation.
For each entry, save:
- Source schedule
- Calculation
- Related invoice or report
- Grant or donor agreement, if relevant
- Approval note
- Ledger posting record
Do not rely on a spreadsheet with no source. The spreadsheet should point back to the record that proves the amount.
Show preparer and reviewer
The approval evidence should show who prepared the entry and who reviewed it. It should also show dates. A reviewer name with no date is weaker than a dated approval.
The reviewer should understand the entry. A grant reclass should be reviewed by finance and, when needed, the grant owner. A restricted fund release should be reviewed against the restriction terms. A bank correction should tie to the reconciliation.
Small nonprofits may have limited staff. If the same person must prepare many entries, add a compensating review by the executive director, treasurer, or outside accountant when appropriate. Ask the auditor what evidence they expect.
Watch management-posted entries
Auditors often pay close attention to manual entries posted by senior staff, entries posted near year-end, and entries with unusual account combinations. This does not mean the entry is wrong. It means the support should be clean.
For year-end entries, include the source schedule and tie to the draft financial statements. For auditor proposed entries, keep the auditor’s proposed entry, management approval, and final posting record.
Do not post an auditor adjustment without understanding it. Management owns the financial statements.
Handle restricted fund releases carefully
Restricted fund entries need clear support. The release should tie to the donor or grant restriction, the qualifying activity, and the accounting period.
A release file should show:
- Restriction terms
- Amount available
- Qualifying expenses or time period
- Calculation
- Reviewer approval
- Ledger entry
GrantPipe can help teams connect restricted funds, grant compliance, deadlines, audit evidence, donor CRM records, and reporting data. That makes it easier to see why a release was posted and what evidence supports it.
Explain corrections
Correction entries should not hide the original problem. The file should explain what was wrong, how it was found, what period was affected, and why the correction is right.
If a correction affects a grant report, note whether the report needs revision or disclosure to the funder. If it affects restricted funds, update the rollforward. If it affects a prior period, ask your CPA how to handle the accounting.
Review the entry population before audit
Before fieldwork, export all journal entries for the year. Filter for manual entries, year-end entries, entries posted by management, large entries, unusual accounts, grant reclasses, and restricted fund releases.
For each likely sample, confirm support is attached and approval is clear. Fix file naming and missing support before the auditor asks.
Journal entry evidence does not need long memos for routine work. It needs a clear trail. The auditor should see why the entry exists, what supports it, and who approved it.
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Looking for something else?
- Journal entry
- An accounting entry that records or adjusts amounts in the general ledger.
DEFINITION
- Release from restriction
- An entry that moves net assets from donor restricted to without donor restrictions after the restriction has been met.
DEFINITION
Q&A
What makes approval evidence strong?
Strong evidence is dated, tied to source records, reviewed by the right person, and saved with the entry.
Q&A
How should correction entries be handled?
Explain the error, show the source support, note the affected period, and keep reviewer approval.
Frequently asked