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- A balance sheet (sometimes called a statement of financial position),
- An activities statement (sometimes called support, revenue, expenses and changes in net assets),
- A cash flow statement, and
- Explanatory footnotes.
Generally accepted accounting principles (GAAP), in Statement of Financial Accounting Standards No. 117, Financial Statement of Not-for-Profit Organizations (SFAS
117) issued by the FASB, requires that (in most cases) expenses of
not-for-profit organizations be reported in three categories of
activities: program, management and general, and fundraising (or, for a
membership organization, membership development).
Other key aspects of interest to nonprofits are outlined by the
Financial Accounting Standards Board (FASB), a nonprofit organization
authorized by the Securities and Exchange Commission to set accounting
standards in the United States. Of particular importance is the FASB’s
Statement of Financial Accounting Standards No.116, which defines:
- Revenue in the form of contributions: These standards establish how and when to recognize that revenue has been earned. They include standards for the accounting treatment of unrestricted and restricted funds, donated goods, in-kind contributions, pledges and the like.
- Value of donated services: This establishes standards for when it is necessary to record donated services (i.e., volunteer time) in the organization’s financial statements. According to the FASB, services to be recognized include those that “(a) create or enhance nonfinancial assets or (b) require specialized skills, are provided by individuals possessing those skills, and would typically need to be purchased if not provided by donation.”
Tax Exemption
For-profit
organizations must pay taxes on their net income, but this is not true
for nonprofits if they are exempt from taxes. If a nonprofit's goal is
to increase the welfare of society, governments tend to help this cause
by minimizing the nonprofit's costs as much as possible. It is these
differences between the two types of organizations that have an impact
on each type's accounting methods.
Grant
Government grants are a common method for non-for-profit (NFP)
organizations to obtain funding. Typically, these grants originate with
the NFP submitting a proposal, to a governmental
agency for specific funding. This proposal will often include a detail
budget of how the grant funds are to be spent. As such, it is important
that the NFP properly track and report its expenditures to ensure
compliance with the grant agreement.
Many government grants also contain specific requirements the recipient
must follow in order to fully comply with the grant. Although these
requirements can cover a wide range a common requirement is the matching
clause. This clause requires the NFP to contribute/raise a certain
level of funds to the project. These funds can come from any source,
other than another government grant.
Audit Process
There are essentially three stages to every audit –
planning/pre-fieldwork, fieldwork, and post-fieldwork/wrap-up. In order
for an audit to run smoothly and efficiently, all three phases need to
be executed well.
It
is inappropriate to prepare income statement for a non-profit
organization since non-profit organizations don’t exist to make profit.
Therefore, non-profit organizations prepare income and expenditure
account as a substitute of income statement
The amount of total Revenues greater than the amount the total expenses of a non-profit organization is referred to as surplus (not net profit). Surplus is not distributed among the members of non-profit organization rather than it is kept for growth and expansion of the organization for example, non-profit organizations use surplus to buy fixed assets such as building for the club, land, equipments etc. - See more at: http://www.accounting-world.com/2013/01/accounts-of-non-profit-organizations.html#sthash.8WJm58bj.dpuf
The amount of total Revenues greater than the amount the total expenses of a non-profit organization is referred to as surplus (not net profit). Surplus is not distributed among the members of non-profit organization rather than it is kept for growth and expansion of the organization for example, non-profit organizations use surplus to buy fixed assets such as building for the club, land, equipments etc. - See more at: http://www.accounting-world.com/2013/01/accounts-of-non-profit-organizations.html#sthash.8WJm58bj.dpuf
It
is inappropriate to prepare income statement for a non-profit
organization since non-profit organizations don’t exist to make profit.
Therefore, non-profit organizations prepare income and expenditure
account as a substitute of income statement
The amount of total Revenues greater than the amount the total expenses of a non-profit organization is referred to as surplus (not net profit). Surplus is not distributed among the members of non-profit organization rather than it is kept for growth and expansion of the organization for example, non-profit organizations use surplus to buy fixed assets such as building for the club, land, equipments etc. - See more at: http://www.accounting-world.com/2013/01/accounts-of-non-profit-organizations.html#sthash.8WJm58bj.dpuf
The amount of total Revenues greater than the amount the total expenses of a non-profit organization is referred to as surplus (not net profit). Surplus is not distributed among the members of non-profit organization rather than it is kept for growth and expansion of the organization for example, non-profit organizations use surplus to buy fixed assets such as building for the club, land, equipments etc. - See more at: http://www.accounting-world.com/2013/01/accounts-of-non-profit-organizations.html#sthash.8WJm58bj.dpuf
e
main purpose of business entities is to make profit as much as possible
for the owner(s), whereas the non- profit organizations are established
not to make profit but for the well-being of their members, society or
general public - See more at:
http://www.accounting-world.com/2013/01/accounts-of-non-profit-organizations.html#sthash.8WJm58bj.dpuf
Characteristics
Profit-Oriented OrganizationsNon-Profit Organizations
Main purpose is to make profit
Main purpose is Not to make profit
Sole proprietorship: Owned by a single owner
Partnership: Owned by partners
Company: Owned by the shareholders
No one ow - See more at: http://www.accounting-world.com/2013/01/accounts-of-non-profit-organizations.html#sthash.8WJm58bj.dpuf
Profit-Oriented OrganizationsNon-Profit Organizations
Main purpose is to make profit
Main purpose is Not to make profit
Sole proprietorship: Owned by a single owner
Partnership: Owned by partners
Company: Owned by the shareholders
No one ow - See more at: http://www.accounting-world.com/2013/01/accounts-of-non-profit-organizations.html#sthash.8WJm58bj.dpuf
Difference
between non-profit organizations and profit oriented organizations -
See more at:
http://www.accounting-world.com/2013/01/accounts-of-non-profit-organizations.html#sthash.8WJm58bj.dpuf
The
main purpose of business entities is to make profit as much as possible
for the owner(s), whereas the non- profit organizations are established
not to make profit but for the well-being of their members, society or
general public - See more at:
http://www.accounting-world.com/2013/01/accounts-of-non-profit-organizations.html#sthash.8WJm58bj.dpuf
Characteristics
Profit-Oriented OrganizationsNon-Profit Organizations
Main purpose is to make profit
Main purpose is Not to make profit
Sole proprietorship: Owned by a single owner
Partnership: Owned by partners
Company: Owned by the shareholders
No one owns a non-profit organization
Profit is distributed to shareholders or owner(s)
Not distributed but kept for growth and expansion of the organization
Main revenue source = Rendering services or selling goods
Main revenue source = Membership subscription
Tax is generally charged on net income
Tax Exemption in many countries - See more at: http://www.accounting-world.com/2013/01/accounts-of-non-profit-organizations.html#sthash.8WJm58bj.dpuf
Profit-Oriented OrganizationsNon-Profit Organizations
Main purpose is to make profit
Main purpose is Not to make profit
Sole proprietorship: Owned by a single owner
Partnership: Owned by partners
Company: Owned by the shareholders
No one owns a non-profit organization
Profit is distributed to shareholders or owner(s)
Not distributed but kept for growth and expansion of the organization
Main revenue source = Rendering services or selling goods
Main revenue source = Membership subscription
Tax is generally charged on net income
Tax Exemption in many countries - See more at: http://www.accounting-world.com/2013/01/accounts-of-non-profit-organizations.html#sthash.8WJm58bj.dpuf
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