Non Profit Accounting

What is a Non-Profit Accounting?

Non-profit accounting is the system of recording and reporting all the business transactions of the business unit that is considered to be a non-profit organization. It involves choosing the best accounting method, understanding of various compliances, tax responsibilities, creating and reporting the figures in the appropriate financial statements.

Components of Non-Profit Accounting

There are certain areas where accounting for nonprofit organizations differs from that of the general organization whose aim is to earn a profit. The following are the different components that are different in the case of non-profit accounting.

Example of the Non-Profit Accounting

Following is the sample example of financial statements in case of the Accounting for the Non-profit organizations are as follows:

You can download this Non-Profit Accounting Excel Template here – Non-Profit Accounting Excel Template

Non-Profit Accounting Statement 1
Non-Profit Accounting Statement 2

Advantages

The various advantages related to Non-Profit Accounting are as follows:

Disadvantages

Though a Non-Profit Accounting is useful in the ways mentioned above, there are certain disadvantages also. The various difficulties related to Non-Profit Accounting are as follows:

  • Non-profit accounting is more immune to the frauds when compared with accounting for the profit organizations. There are chances when the person responsible for the accounting does not account for some of the grants received by the organizations. To overcome this problem, organizations should place a better internal control in the organization and assigning the financial duty to multiple persons instead of assigning it to a single person.
  • Accounting for the Non-Profit is different from the For-Profit organization so, the person who is responsible for accounting should have proper knowledge of the accounting principles and standards that apply to the non-profit organization and ensure adequate compliance with that.

Important Points

The different vital points related to Non-Profit Accounting are as follows:

  • There are three main reports in the financial statement of the non-profit organizations, which include a statement of the financial position, statement of the activities, and the statement of the functional expenses.
  • There are specific programs that are conducted by the non-profit organizations, and the accounting for such programs are done separately to know separate surplus/deficit from such a program.

Conclusion

Thus the Non-profit accounting is the unique system followed in the non-profit organization for recording and reporting of the business transactionsBusiness TransactionsA business transaction is the exchange of goods or services for cash with third parties (such as customers, vendors, etc.). The goods involved have monetary and tangible economic value, which may be recorded and presented in the company's financial statements.read more done by them. The main motive of a nonprofit organization is to provide services for the welfare of the society and not to earn the profit. Thus it receives a considerable amount of the contributions from the different parties without any expectations to receive the return on such contributions.

The accounting approach, thus followed by the non-profit organization, differs from that of the for-profit organizations. There are three main reports in the financial statement of the non-profit organizations, which include a statement of the financial position, statement of the activities, and the statement of the functional expenses.

This article has been a guide to Non-Profit Accounting. Here we discuss components of non-profit organization accounting along with an example, advantages, and disadvantages. You can learn more from the following articles –

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