Do non-profits need to record depreciation?

Non-profit organizations should record depreciation because it is a cost of doing business. Because there are no tax advantages to the non-profit, many non-profits (NPOs) do not record depreciation. Also, because it is a non-cash expense, many NPOs do not record it.

By recording depreciation, an NPO will build its equity position. If depreciation is budgeted, cash balances will increase, as there will be income to offset the expense, but there will be no cash out-flow.

In the long run, the NPO will build cash reserves to replace assets, rather than having to do special fund-raising for major purchases.