Not-for-profit accounting is an area of accounting that is vital to the success and financial stability of charity and non-profit organisations such as charities, non-governmental organisations, churches, youth groups, community action groups and local chambers of commerce. This article looks at what not-for-profit accounting is and how it differs from profit organisation accounting.
What is not-for-profit accounting?
Non-profit accounting pursues different accounting goals, as to what profit accounting does. This is because there are different goals in running profit or non-profit enterprises. Non-profit organisations aim to pursue different goals in the sense that they are aiming to fulfil a purpose, to achieve a community goal or to make a difference in people's lives in terms of the money being spent on facilities and healthcare. Profit organisations serve only to improve the financial lives and success of the people directly involved in the profit-taking of the organisation.
Donations, grants and bursaries
Non-profit organisations do not generate their own income in the usual business sense of the concept. Instead, they take donations, rely on grants and bursaries and are involved with the allocation of trust money. These concepts involve not only different accounting principles, but different legal ones and it is important that the accounting involved in non-profit groups reflects this.
Non-profit accounting usually requires different regulations to be satisfied and different accounting formats to be adhered to. Each jurisdiction will vary massively, so it is best to check out the laws governing your local area in order to find out which one apply for you.
What is the difference between not-for-profit and profit accounting?
The main differences between non-profits and for profits are listed below.
Services and ownership criteria
Non-profits do not have owners, whereas profits accounting have share holders or stake holders.
Non-profits provide services, which are needed by society, whereas profits generate money and income for share/stake holders. Taxes and revenue Non-profits have a secondary mission of ensuring that the money coming in is greater than the money going out in the form of expenses, so that they can continue to grow and help the community, whereas profits has the secondary mission of providing goods and services. Non-profits usually do not have to pay income taxes whereas profits accounting do (each specific rule depends on jurisdiction). It is important to note these key differences so that you can conduct your not-for-profit accounting properly.