Understanding FASB Standards: Cost Allocation Made Easy for Nonprofits

ARTICLE | March 03, 2025

Authored by Vasquez + Company

Cost allocation is a crucial process for nonprofit organizations because it helps them assign shared expenses among different programs, services, and supporting activities. At first glance, the concept may appear daunting, particularly for nonprofits juggling multiple projects and revenue sources. Yet, an accurate allocation of costs is essential for demonstrating accountability and transparency to donors, government agencies, and other stakeholders. It serves as a compass that ensures resources are deployed effectively to fulfill the organization’s core mission while also adhering to accounting standards.

This article features the concept of cost allocation and explain the Financial Accounting Standards Board (FASB) requirements that guide nonprofit reporting, often referred to as Generally Accepted Accounting Principles (GAAP). 

Read the full article here.

Cost allocation is far more than a budget exercise. For nonprofits, properly classifying and allocating expenses is a fundamental step toward receiving continued support, building trust with donors, and maintaining regulatory compliance. Accurately presenting expenses by function and nature clarifies the organization’s focus on its mission and allows funders to see the genuine impact of their contributions.

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