Nonprofit Accounting Basics

Allowable Costs

Note: Articles published before January 1, 2017 may be out of date. We are in the process of updating this content.


The specific items that can be charged to, and therefore reimbursed from, any grant are based on the specifics of each grant agreement. It is not uncommon for each grant to have unique requirements as to what costs can be charged to the grant. However, the general guidelines for allowable costs are contained in OMB Circular A-122, Cost Principles for Non-Profit Organizations. A complete copy of the Circular can be downloaded from

The basic underlying principle of Circular A-122 is that all costs incurred must be reasonable and necessary to properly complete the grant project. The Circular also contains a listing of specific cost items and if they are allowable.

Accepting funding from a governmental agency imposes a number of additional administrative requirements on an NFP. These requirements are detailed in OMB Circular A-110, Uniform Administrative Requirements for Grants and Other Agreements with Institutions of Higher Education, Hospitals and Other Non-Profit Organizations. A complete copy of this Circular can be found at While the Circular contains several administrative requirements, one key element is the requirement that recipients maintain timesheets that accurately reflect how employees spend their time. These timesheets should then be used to properly allocate personnel costs to the grant.